In the 1960-77 period, budget deficits averaged about 8 percent of GDP. After 1977 increases in expenditures were not matched by corresponding increases in revenues, and the result was a rapid increase in the public debt. The budget deficit averaged 15 percent of GDP from 1978 to 1986. It temporarily dropped to 10.3 percent of GDP in 1984 when high tea prices caused increased revenue, but in both 1985 and 1986 it was close to 16 percent. The 1986 deficit of Rs28.1 billion was financed by Rs3.8 billion in foreign grants, Rs12.1 billion in foreign loans, and Rs11.5 billion domestic borrowing from banking and other sources. Foreign loans and grants financed about 50 percent of the budget deficits in the 1980s.

The public debt was about Rs150 billion at the end of 1986, and the total interest payments by the government in 1986 were Rs9.3 billion, or 5.2 percent of GDP. About 45 percent of the public debt was owed to domestic sources. Medium- and long-term debts accounted for 56 percent of the domestic debt, and short-term loans made up the balance. In 1986 rupee securities sold to the pension funds and the National Savings Bank accounts were the principal instrument of the domestic medium- and long-term debt. Domestic short-term financing was raised primarily through treasury bills. The majority of the foreign debt was negotiated at concessional terms (see External Debt , this ch.). In 1986 a total of Rs12 billion in new foreign loans was contracted, of which Rs9.9 billion were for specific projects. Repayments of earlier loans amounted to just over Rs3 billion. The accumulated foreign debt tended to increase annually in rupee terms in the 1980s because of the steady depreciation of the rupee in relation to the currencies of the lending nations.

Data as of October 1988