Sri Lanka’s 2025 Budget: Catalyst for economic development

Sri Lanka’s 2025 Budget is a comprehensive plan that addresses both immediate and long-term economic challenges

Sri Lanka’s 2025 Budget, introduced by President Anura Kumara Dissanayake, marks a significant step towards revitalising the nation’s economy post-crisis. The Budget aims to address the immediate needs of the public while laying the groundwork for long-term economic growth and stability. This article explores the key provisions of the 2025 Budget and their potential impact on Sri Lanka’s economic development.

One of the central themes of the 2025 Budget is fiscal discipline. The Government aims to achieve a primary Budget surplus of 2.3% of GDP, aligning with the International Monetary Fund (IMF) program’s requirements. This surplus is crucial for reducing public debt and creating a more sustainable fiscal environment. To achieve this, the Budget introduces several tax reforms aimed at broadening the tax base and increasing revenue. Notably, the expansion of capital gains tax and the removal of exemptions are expected to enhance revenue collection and promote a fairer tax system.

Funds for physical and digital infrastructure projects

Recognising the role of infrastructure in economic development, the 2025 Budget allocates significant funds for both physical and digital infrastructure projects. A notable allocation of Rs. 500 million is designated for the development of new tourist locations, aiming to boost tourism a vital sector for capital inflow. Additionally, the Government has earmarked $ 10 million for digital transformation strategies, including the implementation of a unique digital ID and new legislation for digital services. These initiatives are projected to generate $ 15 billion in revenue through the digital economy over the next five years.

The Budget places a strong emphasis on export development, recognising its importance for economic growth. The restoration of the Export Development Council of Ministers and the formulation of a National Export Development Plan are key steps in this direction. The budget also proposes the establishment of sector-specific zones and eco-industrial parks through Public-Private Partnerships (PPPs) to support export-oriented investments. These measures are expected to enhance Sri Lanka’s export capacity and competitiveness in the global market.

The 2025 Budget outlines plans to address the longstanding debt of state-owned enterprises (SOEs) like SriLankan Airlines by establishing a holding company to improve governance, financial discipline, and operational efficiency. This restructuring is anticipated to enhance transparency and accountability, setting higher standards for corporate governance across the board. Improved governance in SOEs can serve as a benchmark for private enterprises, fostering investor confidence and encouraging greater participation in the capital market.

Enhanced social safety nets

The Budget includes measures to support the poor and vulnerable through enhanced social safety nets. Investments in education and healthcare are also prioritised to drive long-term growth. By allocating resources to these critical sectors, the Government aims to build a more resilient and skilled workforce, which is essential for sustainable economic development.

The 2025 Budget represents a delicate balancing act between adhering to IMF mandates and addressing domestic economic realities. While the Budget aims for a primary account surplus, it also projects a fiscal deficit of 6.7%, exceeding the IMF’s target of 5.2%. This deviation underscores the challenges in balancing fiscal consolidation with growth initiatives. However, the Government’s commitment to increasing revenue to 15.1% of GDP by 2025 reflects a strategic effort to enhance debt affordability and create a more conducive environment for economic activities.

President Anura Kumara Dissanayake has taken a firm stance against corruption, which has long plagued Sri Lanka’s economic development. The 2025 Budget includes measures to enhance transparency and accountability in Government operations. The Government has empowered the judiciary and police to enforce anti-corruption laws without fear or favour. Additionally, new legislation aims to modernise Government functions, making State machinery more efficient and transparent, thereby reducing opportunities for corruption. These efforts are expected to create a more conducive environment for investment and economic growth.

The Budget also emphasises expenditure discipline among Government ministers, MPs, and the president. A committee has been appointed to review and limit unnecessary entitlements, allowances, and privileges granted to these officials. This move aims to reduce the fiscal burden on the Government and ensure that public funds are used more effectively. By curbing excessive spending and promoting prudent financial management, the Government seeks to set an example of fiscal responsibility and accountability.

Sri Lanka’s 2025 Budget is a comprehensive plan that addresses both immediate and long-term economic challenges. By focusing on fiscal discipline, infrastructure investments, export development, SOE restructuring, and social safety nets, the Budget aims to create a stable and growth-oriented economic environment. While challenges remain, the Budget’s provisions offer a clear path towards economic recovery and sustainable development.

(The writer is an economist based in Canberra, Australia.)