By Sri Lanka’s Revenue Boost Strategy: A Game-Changer for Its Credit Rating?
How Sri Lanka’s Budget Plans Could Impact Debt and Economic Stability
In February 2025, Sri Lanka’s government presented its budget, aiming to raise fiscal revenues and address long-standing weaknesses in the country’s financial profile. According to Fitch Ratings, these efforts could play a crucial role in improving Sri Lanka’s credit outlook. However, significant risks remain, with slow fiscal consolidation potentially hindering debt reduction and economic recovery.
Fitch Ratings Highlights Revenue-Boosting Measures in Sri Lanka’s Budget
The new budget, unveiled on February 17, is the first under Sri Lanka’s newly elected President Anura Kumara Dissanayake of the Janatha Vimukthi Peramuna (JVP) party. This fiscal plan outlines the government’s strategy for economic reform, aiming to raise government revenue to 15.1% of GDP by 2025, a sharp increase from 11.4% in 2023. Fitch Ratings acknowledges the potential of these revenue-raising initiatives, including a 36.5% rise in trade taxes and a 13.1% increase in income taxes.
Risks to Sri Lanka’s Credit Outlook Amid Slower Fiscal Consolidation
While these measures are promising, Fitch notes that Sri Lanka’s budget also plans for a slower pace of fiscal consolidation. The deficit is expected to remain high at 6.7% of GDP in 2025, reflecting increased government spending on public projects and wages. Despite these challenges, Sri Lanka’s progress in boosting revenue and managing fiscal reform could play a critical role in stabilizing its credit profile.
What Does the Future Hold for Sri Lanka’s Economic Stability?
Fitch Ratings suggests that while Sri Lanka’s credit rating has improved recently, continued slow progress in reducing debt and managing fiscal risks could weaken the country’s financial standing. The IMF program’s projections for debt reduction are more ambitious than the budget’s slower approach, raising concerns about the country’s long-term economic growth and stability.
