Treasury issues 2025 budget guidelines while warning against complacency as economy stabilizes

Secretaries to Ministries Chief Secretaries of Provincial Councils Heads of Departments, Chairpersons of State Corporations, University Grants Commission and Statutory Commissions were informed by circular on Monday (August 12) of the guidelines to be followed for preparing the Budget estimates for the new year.

The Finance Ministry said that the 2025 Budget will be framed to ensure fiscal discipline and prudent fiscal management, whilst ensuring that adequate public funds are strategically deployed towards optimizing efficiency and ensuring value for money.

The circular said that through a comprehensive, coordinated macroeconomic reform programme during the last two years, it has been possible to convert a primary budget deficit of 5.7% of GDP in 2021 into a primary budget surplus of 0.6% of GDP in 2023.

“The government revenue is gradually increasing and the Central Bank financing (loosely termed as money printing) has been terminated since mid-September 2023. Through these measures, along with other macroeconomic reform processes, a degree of stability has now been established in the economy,” the circular said.

However, the Finance Ministry warned that whilst the fiscal position has stabilised considerably compared to the past two years, this is by no means a time for complacency.

“The prevailing economic stability is intrinsically connected to the maintenance of fiscal discipline and the continuity of the macroeconomic reform path. Any deviation from this path could easily push the country into a vicious cycle towards rapid economic downturn’ it said.

The circular added that the Treasury is building up cash buffers and fiscal resilience keeping in mind the potential headwinds in  the future, which may arise from both domestic and exogenous challenges.

“Fiscal management and public expenditure must continue to embody the principles of prudence and discipline while ensuring value for money, and optimal public return for every rupee that is expended,” the state institution heads were informed.

The mid-term fiscal targets and strategies include increasing government revenue up to 15.1% of GDP in 2025 and then up to 15.3 percent in 2027 through new revenue enhancing measures, together with strengthening tax administration, broadening the tax net, enhancing compliance and digitalization.

2025-2027 Medium-Term Fiscal Targets and Strategies:

• Maintaining the government expenditure within 20 percent of GDP from year 2025 onwards through prudent expenditure management, whilst improving expenditure allocation to optimize public returns of government spending.

• Gradually increasing the capital expenditure to over 4 percent of GDP from 2025 onwards.

• Maintaining the primary expenditure below the legislated limit of 13 percent of GDP.

• Maintaining a primary budget surplus at a level of 2.3 percent of GDP during the medium term from 2025 onwards.

• Maintaining the budget deficit at a level below 5 percent of GDP from year 2025 onwards.

• Implementation of recent and upcoming legislative and institutional reforms in order to strengthen fiscal management with responsibility, discipline and transparency.

• Increasing the revenues of State-Owned Enterprises and expenditure rationalization.