Sri Lanka’s new budget had to be IMF friendly. But is it friendly enough for the nation’s beleaguered citizens?

Sri Lanka’s recently appointed president may have presented his first full budget to parliament, weeks after a vital agreement with the International Monetary Fund was arranged, but Ranil Wickremesinghe’s “open economic system of social protection” strategy is not enough, experts say, to overcome the fiscal crisis still battering his country’s people.

In line with IMF conditions laid out for the nation to secure US$2.9 billion in financing, the budget proposes various measures including income tax reforms, more tax on diesel, petrol and crude oil at the point of importation, the restructuring of loss-making state-owned enterprises like Sri Lankan Airlines, labour law reforms, and changes to the social welfare system.

With these changes government revenue for 2023 is projected to be LKR 3,415 billion (US$9.2 billion), with tax revenues projected to rise from the LKR 1,852 billion projected during the interim budget of 2022 to LKR 3,130 billion, mainly through the new Inland Revenue (Amendment) Bill, passed in October but not yet implemented. It aims to broaden the tax base.

However, the total budget deficit is expected to expand further to LKR 2,404 billion (US$6.5 billion) from the LKR 2,333 billion projected in the interim budget of 2022 – a dismal sign, according to many of the country’s academics.

A strategic recovery path [from the economic crisis] is not visible in Wickremesinghe’s budget, said Lalithasiri Gunaruwan, an economics professor at the University of Colombo.

“If expenditure grows much faster than revenue, that means the fiscal situation is going to get worse next year. I cannot consider that as a good indicator,” he said.