Tuesday, June 25, 2024

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Government contends in cash flow management under fiscal stress

May 25, Colombo (LNW): Faced with decreasing revenues and constrained access to financial markets, governments need to address the challenge of meeting extended cash needs for daily expenses for public sector services 

Government Treasury is compelled to curtail spending further in the second quarter of this year as the day’s revenue collection is far below the daily expenditure creating a cash flow problem, finance ministry sources confirmed.  

There is in urgent need of tackling treasury cash flow issue as its monthly collection in tax revenue is inadequate to pay public sector salaries, pension and samurdhi welfare, fertiliser, medicine, and other administration costs. 

Treasury cash flow management process controls the annual budget approved by Parliament for 2024 financial year into an implementable cash flow.

The endowment flows include cash inflows in the form of revenue and borrowings and cash outflows in the form of expenditure, which comprise both recurrent and capital payments including debt service payments, a senior official of the ministry said. 

The Department of Treasury Operations is encountering a challenging task in handling cash flow this year.

 This difficulty arises from the limitations imposed by existing laws, which prohibit obtaining loans and printing money. 

Moreover, government spending has escalated, attributed to both welfare and recurrent expenses. However, it is noteworthy that effective financial management practices are underway in the country.

At present a sum of Rs 14.67 billion is needed to meet the day’s expenditure while the daily total receipt is Rs 8.42 billion, ministry data and computation showed indicating a shortfall of Rs 6.25 billion, finance ministry data shows.      

The 19 percent VAT hike and removal of VAT exemptions this year will reduce the consumption of people grappling to survive in high cost of living with their limited income, several economic analysts said.

The tax rate increase and the threshold decrease for businesses liable for VAT have brought more items under VAT at a higher percentage affecting all the people burdening   the poor and vulnerable groups. 

The expected revenue of Rs1.4 trillion from VAT was an over estimation which cannot be achived under present economic situation, an economic expert claimed. 

The increase in corporate income tax, personal income tax, Social Security Contribution Levy (SSCL), and Customs import duty is unlikely to generate the estimated revenue, he added.  

Under this set up the Government has increased the 2024 tax revenue target to Rs. 2.75 trillion from the 2024 budget estimate of Rs. 2.59 trillion.

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