Sri Lanka is set to present a national budget on Friday that will place economic reforms at its core, as the government seeks to meet International Monetary Fund (IMF) targets vital for unlocking further financing and revitalising growth. President Anura Kumara Dissanayake, who also serves as finance minister, rose to power late last year on promises to tackle corruption and stabilise the economy after the island nation suffered its worst financial crisis in decades in 2022.
According to analysts, the upcoming budget is unlikely to introduce new taxes, as current revenue levels have remained steady and are expected to continue into next year with the strengthening pace of economic recovery. Sri Lanka is working toward achieving a 2.3% primary surplus and raising public revenue to 15% of GDP by 2025, key conditions set by the IMF. The island nation’s economy grew by 5% last year, signaling a gradual rebound from runaway inflation, a collapsing currency, and a $22.5 billion debt default three years ago.
The IMF has emphasized that sustained efforts will be required to improve tax compliance, broaden the tax base, streamline tax exemptions, and enhance public financial management. Meeting these targets is crucial for improving Sri Lanka’s credit rating post-default, which will allow the country to re-enter international financial markets and manage debt repayments starting in 2028.
In addition, Sri Lanka is drafting tax laws designed to attract foreign investment, a cornerstone of the reforms needed to secure the sixth IMF tranche of $347 million by year-end. This tranche would bring the total funds unlocked under the IMF’s nearly $3 billion support program to approximately $2.04 billion. The IMF program also includes restructuring loss-making state enterprises, implementing land and labor reforms, and adjusting tax policies to incentivize investment.
Arvind Nair, World Bank Senior Economist for Maldives, Nepal, and Sri Lanka, told Reuters that a combination of structural reforms and smarter investment policies could allow Sri Lanka to achieve 5% to 6% growth over the medium term. The World Bank projects growth of 4.6% in 2025, slowing to 3.5% in 2026, reflecting cautious optimism amid ongoing recovery efforts.
