Budget aims at balancing economic stability and challenges
Sri Lanka’s 2025 budget conforms to a number of International Monetary Fund (IMF) benchmarks but major deviations have raised eyebrows among economists about the speed of fiscal consolidation.
Although financial experts are guarded in their comments, commercial chambers and rating agencies have reacted with moderate judgements.
Sri Lanka is still grappling with high and unsustainable budget deficits mainly due to weak tax collections and poor expenditure management.
The country’s economic crisis was further aggravated by very low tax revenues, which obligated debt default at a quicker rate.
While there have been efforts to streamline government spending, most of the cuts have been limited to capital outlays, whereas recurrent spending such as public sector salaries, pensions, and interest payments has not been touched.
Prof. Shirantha Heenkenda, Dean of the Faculty of Humanities and Social Sciences of the University of Sri Jayawardenapura emphasised that Sri Lanka must adhere strictly to its IMF agreement in order to achieve financial stability. He warned that any deviation from it would undo the gains made so far.
He also emphasised the importance of four key pieces of legislation—the Economic Transformation Act, Public Debt Management Act, Public Financial Management Act, and the Central Bank Act—highlighting that any violation would undermine economic stability.
The IMF has proposed tightening revenue measures and fiscal discipline in a bid to achieve a medium-term primary balance of 2.3 per cent of GDP.
Prof. Priyanga Dunusinghe, Head of the IT Department at the University of Colombo, noted the need to boost productivity to fight inflation and the high cost of living. He noted that economic growth is based on increasing labor productivity that, in turn, reflects higher wages and overall economic development.
Fitch Ratings has expressed skepticism about the ambitious nature of the 2025 budget, citing significant implementation risks. The budget expects a 36.5 per cent revenue increase from external trade taxes and a 13.1 per cent rise in income tax revenue. Fitch believes these targets are feasible, given the revenue-raising measures already in place, but notes that a smooth liberalisation of import restrictions—particularly for vehicles—will be critical.
Moody’s Ratings has also expressed concerns, stating that the planned expenditure will widen the fiscal deficit and slow down fiscal consolidation.
The Ceylon Chamber of Commerce applauds the budget focus on stability, governance, public relief, anti-corruption, and broad-based growth.
But it warns that the transition from the current Simplified Value Added Tax (SVAT) system to a risk-based refund scheme must be done carefully, with pilot testing to ensure efficiency.
The Chamber of Young Lankan Entrepreneurs (COYLE) took a positive perception, and it is of the opinion that 2025 budget is a genuine attempt to overcome economic challenges rather than being a populist budget. It perceives the budget as a stage for stable economic growth.
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