By: Staff Writer

November 24, Colombo (LNW): As Sri Lanka gears up for the 2025 budget, the country faces a pivotal moment in its economic recovery. After enduring a prolonged financial crisis, the government aims to stabilize the economy, manage national debt, and encourage development. The 2025 Appropriation Bill, scheduled for March, will set the tone for Sri Lanka’s fiscal path and long-term recovery.

Provisional Budget Estimates and Key Targets

The Finance Ministry has released provisional figures for 2024 to guide the detailed planning for 2025. These estimates are essential in defining a fiscal framework that balances financial discipline with economic growth.

In 2025, the government plans to boost revenue to 15.1% of Gross Domestic Product (GDP) while maintaining expenditures at 20% of GDP. This careful approach aims to sustain economic stability amid recent challenges.

Key objectives for the 2025 budget include: Revenue Goal: Achieving 15.1% of GDP, equivalent to Rs. 3.9 trillion. Expenditure Limit: Capping at 20% of GDP, or around Rs. 5.2 trillion.

Budget Deficit: Targeting below 5% of GDP. Primary Surplus: 2.3% of GDP, aiding debt management. Increased Capital Investment: Over 4% of GDP for growth-oriented projects.

These targets are part of a strategy to ensure effective completion of projects, avoiding delays and cost overruns, thereby contributing to sustainable development.

Fiscal Performance in 2024 and 2025 Outlook

In 2024, Sri Lanka’s revenue collection surpassed expectations. Initial projections set a revenue-to-GDP ratio at 13.02% based on a GDP of Rs. 31,500 billion, aiming for revenue of Rs. 4,100 billion. Adjustments brought the GDP estimate to Rs. 30,000 billion, leading to a higher revenue-to-GDP ratio of 13.67%, an overperformance equivalent to Rs. 201 billion.

For 2025, the Finance Ministry is targeting Rs. 5,000 billion in revenue, with GDP estimates ranging between Rs. 33,000 billion and Rs. 34,500 billion.

These figures translate to revenue-to-GDP ratios of 15.15% and 14.49%, respectively—both above the International Monetary Fund (IMF) benchmarks, signaling confidence in meeting fiscal targets.

Tax Adjustments and Revenue Implications

The 2025 budget will bring several tax modifications. An increase in the tax threshold from Rs. 100,000 to Rs. 200,000, coupled with reduced tax rates, may reduce revenue by Rs. 70-80 billion. Exemptions on Value Added Tax (VAT) for essentials like school supplies and baby food could lead to an additional Rs. 70-80 billion shortfall. Despite this, the strong 2024 revenue performance suggests that these adjustments are manageable.

Interest Payments and Budget Priorities

Professor Wasantha Athukorala from the University of Peradeniya has highlighted concerns about Sri Lanka’s rising domestic debt and interest payments, a growing topic in political discussions.

 In 2024, interest payments totaled LKR 2,651 billion, consuming 40% of total expenditure. This far exceeds the combined 14% allocated for health, education, and social protection, and the 9% earmarked for defense.

These figures underline the challenge of managing interest payments, which dominate government spending more than any other category, signaling the need for careful fiscal planning to prioritize sustainable economic growth.