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Interest Costs Have Been Eating Up Revenue
In 2023, for the first time in history, the government spent 9% of its GDP on interest payments, which took up 80% of the government revenue. A high interest-to-revenue ratio can be severely detrimental to a country's debt sustainability. This high ratio creates a need to borrow more, undermining debt sustainability and leaving limited revenue for essential government spending and investments. The interest-to-revenue ratio has increased in recent years for two reasons. Revenue Fell Due to Tax Reductions in 2019 Government revenue as a share of GDP dropped from 12% in 2019 to 9% in 2020. This is mainly due to the newly elected government lowering several tax rates in 2019. Thus, the interest share of revenue increased to 71% in 2020 from 47% in 2019, even though the interest payments as a share of GDP remained at 6%. Interest Costs Surged Due to High Interest Rates and More Government Debt Interest expenditure as a share of GDP increased to 9% in 2023 from 6% in pre-2021. This is due to (1) the domestic interest rates skyrocketing to above 25% post-2021 from less than 10% in the prior years - mainly owing to tight monetary conditions and lack of access to foreign financing. (2) Central government debt also increased significantly from 81.9% in 2019 to 114.2% in 2022, leading to higher interest expenditure as the government had to pay more interest on the excessive debt obtained. It is also important to note that this interest figure would have been much higher if the accrued interest expenditure on defaulted foreign debt had been included.
Featured Insight
Interest Costs Have Been Eating Up Revenue
In 2023, for the first time in history, the government spent 9% of its GDP on interest payments, which took up 80% of the government revenue. A high interest-to-revenue ratio can be severely detrimental to a country's debt sustainability. This high ratio creates a need to borrow more, undermining debt sustainability and leaving limited revenue for essential government spending and investments. The interest-to-revenue ratio has increased in recent years for two reasons. Revenue Fell Due to Tax Reductions in 2019 Government revenue as a share of GDP dropped from 12% in 2019 to 9% in 2020. This is mainly due to the newly elected government lowering several tax rates in 2019. Thus, the interest share of revenue increased to 71% in 2020 from 47% in 2019, even though the interest payments as a share of GDP remained at 6%. Interest Costs Surged Due to High Interest Rates and More Government Debt Interest expenditure as a share of GDP increased to 9% in 2023 from 6% in pre-2021. This is due to (1) the domestic interest rates skyrocketing to above 25% post-2021 from less than 10% in the prior years - mainly owing to tight monetary conditions and lack of access to foreign financing. (2) Central government debt also increased significantly from 81.9% in 2019 to 114.2% in 2022, leading to higher interest expenditure as the government had to pay more interest on the excessive debt obtained. It is also important to note that this interest figure would have been much higher if the accrued interest expenditure on defaulted foreign debt had been included.
Featured Insight
Interest Costs Have Been Eating Up Revenue
In 2023, for the first time in history, the government spent 9% of its GDP on interest payments, which took up 80% of the government revenue. A high interest-to-revenue ratio can be severely detrimental to a country's debt sustainability. This high ratio creates a need to borrow more, undermining debt sustainability and leaving limited revenue for essential government spending and investments. The interest-to-revenue ratio has increased in recent years for two reasons. Revenue Fell Due to Tax Reductions in 2019 Government revenue as a share of GDP dropped from 12% in 2019 to 9% in 2020. This is mainly due to the newly elected government lowering several tax rates in 2019. Thus, the interest share of revenue increased to 71% in 2020 from 47% in 2019, even though the interest payments as a share of GDP remained at 6%. Interest Costs Surged Due to High Interest Rates and More Government Debt Interest expenditure as a share of GDP increased to 9% in 2023 from 6% in pre-2021. This is due to (1) the domestic interest rates skyrocketing to above 25% post-2021 from less than 10% in the prior years - mainly owing to tight monetary conditions and lack of access to foreign financing. (2) Central government debt also increased significantly from 81.9% in 2019 to 114.2% in 2022, leading to higher interest expenditure as the government had to pay more interest on the excessive debt obtained. It is also important to note that this interest figure would have been much higher if the accrued interest expenditure on defaulted foreign debt had been included.
Featured Insight
Interest Costs Have Been Eating Up Revenue
In 2023, for the first time in history, the government spent 9% of its GDP on interest payments, which took up 80% of the government revenue. A high interest-to-revenue ratio can be severely detrimental to a country's debt sustainability. This high ratio creates a need to borrow more, undermining debt sustainability and leaving limited revenue for essential government spending and investments. The interest-to-revenue ratio has increased in recent years for two reasons. Revenue Fell Due to Tax Reductions in 2019 Government revenue as a share of GDP dropped from 12% in 2019 to 9% in 2020. This is mainly due to the newly elected government lowering several tax rates in 2019. Thus, the interest share of revenue increased to 71% in 2020 from 47% in 2019, even though the interest payments as a share of GDP remained at 6%. Interest Costs Surged Due to High Interest Rates and More Government Debt Interest expenditure as a share of GDP increased to 9% in 2023 from 6% in pre-2021. This is due to (1) the domestic interest rates skyrocketing to above 25% post-2021 from less than 10% in the prior years - mainly owing to tight monetary conditions and lack of access to foreign financing. (2) Central government debt also increased significantly from 81.9% in 2019 to 114.2% in 2022, leading to higher interest expenditure as the government had to pay more interest on the excessive debt obtained. It is also important to note that this interest figure would have been much higher if the accrued interest expenditure on defaulted foreign debt had been included.
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Expenditure
Insights and analysis of government expenditure.
Defence Sector Claims Nearly Half of State Salaries
According to the 2023 Budget Estimates, 15% of total recurrent expenditure of the government will be spent on salaries for government employees for the year 2023.
From The PF Wire
Source:
Daily FT
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Source:
DailyFT
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Are our ministries open about the progres...
Budget Promises 2018: Openness of Promis...
By making it easier for people to find ou...
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Featured
Restructuring Domestic Debt Must be Credible, Fast...
This article was compiled by Professor Udara Peiris. Udara Peiris joined Oberlin in the fall of 2022. He was previously a tenured Associate Professor of Fi...
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Defence budget for uniforms and diets alone up by...
Based on the 2024 budget estimates, expenditure on uniforms and diets in the defence sector is projected to increase by a significant LKR 75 billion, a 258 percent rise compared to 2022.
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VAT revenue collection: Maldives highest, Sri Lank...
Sri Lanka has the lowest tax revenue collected through Value Added Tax (VAT) in South Asia while Maldives with a lower tax rate collects nearly 5 times more through its Goods and Services Tax (GST).
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