Sri Lanka's budget deficit has narrowed 18 percent in absolute terms to 280.5 billion rupees in the five months to May from 310.4 billion rupees, with revenues up 25 percent, official data show.

Tax revenues rose to 568 billion rupees in the five months to May from 467 billion rupees a year earlier, rising to 5.0 percent of gross domestic product from 4.4 percent a year earlier, Finance Ministry data showed.

A large number of small vehicles and motorcycles imported to the country in 2015 had increased living standards of the people, especially people who are not super rich, and they are now contributing to tax revenues through petrol usage.

Diesel users however are not paying their share to government coffers. 

Inflation and a currency collapse has also pushed the nominal price structure in the economy up, giving more nominal taxes to meet higher salaries for state workers and an increase in subsidies in 2015.

Government current expenditure rose 7 percent to 700.3 billion rupees, almost in line with inflation, amid an effective wage and subsidy freeze after last year's steep increase, but there is a higher interest bill in 2016.

Capital expenditure up to May was up 19 percent to 190.6 billion rupees, generating an overall deficit of 280 billion rupees with negligible grants of 0.457 billion rupees.

The nominal deficit was down 10 percent from 310 million rupees a year earlier. In terms of estimated GDP for 2016, the deficit was down 2.3 percent.

The entire deficit was financed through domestic means in the first five months of the year. But total domestic borrowings were down to 279 billion rupees from 367 billion rupees last year.

Last year interest rates were suppressed by the central bank which released liquidity mopped up through term repo deals, triggering a balance of payments crisis. 

Rates were only raised after the rupee collapsed, a familiar strategy which analysts call 'rawulath ne kendath ne'.

(ECONOMYNEXT)