Sri Lanka’s government faces a delicate balancing act as it unveils its 2024 budget plan today, aiming to sustain an IMF-led bailout by raising revenue through tax hikes while navigating the path toward economic recovery.
President Ranil Wickremesinghe, serving as both president and finance minister, will present the annual budget to parliament at midday. His challenge lies in increasing tax revenue and rationalizing spending to support an economic turnaround crucial for his appeal in the 2024 presidential elections.
The authorities must meet stringent targets set by the IMF in a $2.9 billion bailout, part of which has already been allocated, contributing to a slow recovery in an economy projected to contract by 2% this year.
The IMF, advocating a 12% budget deficit for 2024 under its four-year program, has cautioned about revenue shortfalls. Sri Lanka’s cabinet has approved a 3% increase in Value Added Tax (VAT) from January 1, alongside expanding VAT collection to boost revenue. Wickremesinghe is also expected to outline additional revenue measures, including new taxes such as wealth and inheritance taxes proposed in the IMF program.
Preliminary budget figures indicate that Sri Lanka’s expenditure will exceed a record 6.5 trillion rupees ($19.8 billion) in 2024, a 12% increase from the previous year. Interest payments, totaling 2.6 trillion rupees, constitute over a third of total spending, while capital expenditure is expected to remain largely unchanged from 2023 at 1.2 trillion rupees.