Public Finance

The 2017/2018 budget deficit as a percentage of GDP was in line with last year’s forecast of 3.2%.

Government now expects a sustained rate of 3.2% for 2018/2019, on the basis of a Rs10.6bn increase in Revenues (+9.9%) offset by a Rs11.5bn increase in Expenditure (+9.4%).

The 2017/2018 GDP growth rate has also remained at the 2016/2017 rate of 3.9%, thus falling short of the last 2 years’ forecast of 4.1%.

For 2018/2019, an estimated 4.1% GDP growth rate is also being maintained for the third consecutive year.

Revenue

• Revenue for 2017/2018 is estimated at Rs106.8bn (4.8% lower than the forecast for that year).

• Revenue for 2018/2019 is expected to grow by 9.9% to reach Rs117.4bn.

• This growth is expected to be driven mainly by a buoyant 9.4% increase in revenue from VAT, a 15.2% forecasted growth in income tax from corporate bodies and a 38.8% rise in external grants (including Rs6.6bn from the Indian Government and Rs1.1bn from the Chinese Government).

Expenditure

• Social Benefits are projected to increase by 8.4% highlighting the Government’s increased focus on “Quality of Life” and “Welfare System” in this budget.

• Compensation of Government employees also witnesses a 6.5% rise, with recruitment of additional public servants.

• Capital Expenditure is expected to increase by Rs2.2bn or +14.0% over 2018/2019, mainly driven by a Rs3.3bn increase in the Acquisition of Non-Financial assets.

The 2017/2018 public debt has increased by 2.2% to reach Rs302.1bn, but has fallen as a proportion of GDP (63.4% of GDP vs. 66.1% in 2016/2017).  The increase in debt level is mainly on account of a Rs7bn increase in domestic debt to Rs244bn with foreign debt remaining stable at Rs59bn.

The public debt to GDP ratio is line with last year’s forecast of 63.0% given the faster GDP growth.

For 2018/2019, debt is expected to rise further to Rs323.4bn but with the Debt to GDP ratio being contained at a lower 63.1% on account of the further GPD growth of 7.5% compared to public debt growth of 7.0%.