Sri Lanka will miss the budget revenue target for the 33rd year in a row in 2024

According to the recently released ‘State of the Budget Report 2024’, Sri Lanka is expected to fall short of its revenue-to-GDP (gross domestic product) budget target for the 33rd consecutive year in 2024.

The State of the Budget Report is compiled annually by Verité Research and published on PublicFinance.lk, Sri Lanka’s premier economic insights platform.

The report provides a robust analysis and objective assessment of the fiscal, financial and economic estimates of Sri Lanka’s annual budget. It reflects the scope of a budget report expected to be published by the parliamentary Committee on Public Finance (COPF), with the same aim: to help improve informed engagement with the budget, both in public and in parliament. Verité Research’s State of the Budget Report has consistently been more accurate in terms of budget outcomes than the government’s projections, which are approved by parliament. It therefore constitutes an important additional input for professional economic analysis and decision-making in Sri Lanka.

• Overestimated tax revenues

Sri Lanka has not achieved its revenue/GDP target set in a budget since 1991. Recently, the Parliamentary Committee on Ways and Means reported that tax revenues in 2023 fell 13% short of the budgeted target.

For 2024, the government expects a turnover of LKR 4,164 billion, an increase of 42% compared to the revised projections for 2023. However, the State of the Budget Report predicts a deficit of 14%, with a turnover of only LKR 3,570 billion.

The report attributes 61% of the projected shortfall to an overestimation of value added tax (VAT) revenues. The remaining 39% is attributed to the overestimation of corporate income tax, personal income tax, social security contribution (SSCL) and customs duties.

• Interest-income ratio

Sri Lanka has the highest interest-cost-revenue ratio in the world and reducing this ratio is critical for macroeconomic stability and sustainability. The 2024 budget expects to reduce this ratio to 64%. However, revenue forecasts in the State of the Budget Report, together with the government’s calculation of interest costs, indicate that this ratio will exceed 70%, as in recent years. Sri Lanka will therefore fall short of the economic recovery plan agreed with the IMF, based on what economists consider a crucial indicator of debt sustainability.

The 2024 State of the Budget Report is now publicly available at https://publicfinance.lk/en/report/state-of-budget-2024#:~:text=State%20of%20the%20Budget%3A%202024&text=The %20State%20of%20the%20Budget,out%20in%20four%20main%20sections