Sri Lanka’s 2024 budget sets ambitious revenue, deficit targets

Lotus tower in Colombo, Sri Lanka

Photo credits: unsplash

Sri Lanka’s government projected a lower-than-anticipated budget deficit for 2024 on Monday on the back of a significant jump in revenues which are crucial to keep its bailout programme from the International Monetary Fund afloat.

The government set a fiscal deficit target of 2.85 trillion Sri Lankan rupees ($8.73 billion) in 2024, or 9.1% of GDP, higher than the revised 8.5% of GDP in the current year. The original target for this year was 7.9%.

Next year’s deficit target, however, is smaller than the 12% backed by the IMF, after the fund warned of revenue shortfalls when reviewing the country’s finances as part of the $2.9 billion bailout package.

The government also projected total tax revenue at 4.1 trillion rupees for 2024, sharply higher than 2.85 trillion rupees in the current year, with the biggest jump coming from the goods and services tax receipts, the budget document showed.

“This is a budget to build the foundation of Sri Lanka’s recovery. We cannot continue as a people who depends on others,” President Ranil Wickremesinghe, who is also the island nation’s finance minister, told the parliament.

“To ensure that Sri Lanka does not collapse again we have to renew and recreate our economic and political systems.”

Sri Lanka’s economy contracted 7.8% in 2022, forcing it to default on its foreign debt in its worst financial crisis since Independence in 1948.

Budget expenditure has been set at a record 6.98 trillion rupees in 2024, an increase of nearly 33% compared to 2023, with capital expenditure more than doubling and 450 billion rupees reserved for bank recapitalisation.

“The budget deficit is lower than anticipated but if we add the allocation for bank recapitalisation the deficit increases,” said Dimantha Mathew, head of research, First Capital Research.

The island will allocate 3 trillion rupees to repay international sovereign bonds in 2024 after ongoing debt restructuring talks with bondholders are finalised, Wickremesinghe said, proposing to raise Sri Lanka’s debt ceiling by 3.45 trillion rupees to 7.35 trillion rupees.

The central bank expects growth of 3.3% in 2024, when the country will hold presidential elections.

The cabinet had already approved raising Value Added Tax (VAT) by 3% from Jan. 1 and broadening collection.

The government has projected a primary account deficit of 0.6% of GDP, slightly smaller than 0.7% in 2023, with the IMF requiring the nation to reach a primary surplus of 2.3% by 2025 and reduce its debt to GDP to 95% by 2032.

The debt to GDP ratio stood at 113.8% as of end-December.

($1 = 326.5000 Sri Lankan rupees)