By: Staff Writer

November 25, Colombo (LNW): The International Monetary Fund (IMF) has expressed confidence in Sri Lanka’s economic future as the country prepares for its 2025 Budget under President Anura Kumara Dissanayake’s administration.

The budget is seen as a pivotal test of the government’s ability to maintain economic stability while the nation recovers from a severe economic crisis.

The IMF’s focus is on fiscal discipline and reform to ensure long-term economic health, with special attention to macroeconomic stability and debt sustainability.

Emphasis on Fiscal Responsibility and Tax Reforms

The IMF has emphasized the importance of prudent fiscal policies to ensure that the 2025 Budget aligns with their program’s objectives.

According to Peter Breuer, the IMF’s Senior Mission Chief for Sri Lanka, it is crucial for the government to focus on increasing revenue while exercising spending restraint.

The IMF has recommended continuing with tax reforms to improve compliance and to avoid introducing new tax exemptions, which could lead to revenue loss and corruption risks.

These changes aim to build fiscal buffers that can support social programs and aid vulnerable groups.

The reforms also seek to make the tax system fairer, with the burden distributed based on the taxpayer’s ability to pay.

This equitable approach will help balance the budget while preserving social stability. Programs like Aswesuma, which are designed to support the most disadvantaged, will play a critical role in maintaining social equity as the country reforms its tax administration.

Revenue Growth and Controlling Expenditures

Sri Lanka’s financial data from January to September 2024 shows promising progress. Tax revenues have risen by 39%, totaling 2,918.3 billion rupees compared to the same period the previous year, aligning closely with the budget’s target of a 40% increase.

Non-tax revenues also grew by 30%, reaching 229.7 billion rupees. While overall current spending rose slightly by 3%, it remained controlled, supported by a stable interest rate environment and a strengthening currency.

Total revenues now account for 9.3% of GDP, up from 7.6% the previous year, moving closer to the government’s goal of 13% for the fiscal year.

Lower Budget Deficit and Increased Capital Investment

The budget deficit has seen a dramatic reduction, decreasing by 58% to 516.3 billion rupees, or 1.6% of the projected GDP. Capital expenditure rose by 14%, reaching 463.2 billion rupees as Sri Lanka seeks to improve its infrastructure and exit financial default.

Despite increased capital spending, interest costs have remained steady, rising by only 1% due to deflationary policies that have kept Treasury yields low. The primary balance, excluding interest payments, showed a surplus of 784.9 billion rupees, a significant leap from the previous year’s 123.8 billion rupees.

Debt Reduction and Recovery Path

Sri Lanka’s government debt has declined, dropping to 91.6% of the projected GDP by September 2024 from 100.6% the year before. Foreign debt also saw a reduction, attributed to a stronger Sri Lankan rupee and foreign debt repayments.

Total government expenditure relative to GDP fell from 13.5% to 12.4%, despite a nominal 4% increase in spending, indicating effective fiscal management.

These trends reflect the benefits of current monetary policies, which have stabilized the economy without causing inflationary pressures.

Outlook for a Sustainable Future

The IMF has praised the Sri Lankan government’s adherence to the reform program, emphasizing that consistent efforts are needed for continued recovery.

While economic stability has improved, the challenge remains to balance the budget while ensuring support reaches the most vulnerable populations.

The IMF has called for targeted social spending to address these needs effectively.

As Sri Lanka moves forward with the 2025 Budget, the international community, particularly the IMF, is closely monitoring the country’s progress.

 The focus on economic reform, fiscal discipline, and social equity will be key factors in determining whether Sri Lanka can continue on a path of recovery and long-term prosperity.