Sri Lanka's tax revenue increased significantly by 56% to 2,512 billion rupees in the 11 months leading up to November. Total revenues also rose to 2,758 billion rupees. Despite this, the country faced a substantial surge in its deficit, primarily due to increased interest costs. The monthly tax collection reached 299 billion rupees in November. The country's current spending skyrocketed to 4,292.8 billion rupees, marking a 46% increase, with interest costs experiencing a significant jump. Non-interest expenses rose by 14.5%. Notably, there were salary and pension increases in January 2024. Interest costs, which were already high at 1,772 billion rupees up to October, escalated further to 2,351 billion rupees by November 2023. In Sri Lanka, interest costs tend to rise during a stabilization year following a currency crisis triggered by the central bank's rate cuts and liquidity injections. The stabilization process began in April 2022 when Sri Lanka allowed interest rates to rise. However, fears of a full default in domestic securities to meet IMF requirements caused further spikes in government securities' interest rates. Officials have tried to mitigate the impact of domestic bonds and restructured some bonds, with the EPF-held bonds' coupon set at 12.5% until 2025. The effect of this restructuring on the first two years is unclear. Taxes on interest have contributed to revenue increases. The primary balance before interest, a key IMF criterion, showed a surplus of 331 billion rupees. This surplus is significant as interest rates had to be increased to stabilize foreign exchange shortages caused by previous rate cuts. The deficit in the current account of the budget increased by 35% to 1,534 billion rupees. Capital spending was relatively controlled at 498 billion rupees, a 7% increase. Overall, the budget deficit rose by 26% to 2,020 billion rupees.

https://economynext.com/sri-lanka-tax-revenues-up-56-pct-deficit-up-on-interest-in-nov-23-148891/