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 Rs2.85 trillion Sri Lankan ($8.73 billion) in 2024, or 9.1 per cent of GDP, higher than the revised 8.5 per cent of GDP in the current year. The original target for this year was 7.9 per cent.
Next year’s deficit target, however, is smaller than the 12 per cent 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 Rs4.1 trillion for 2024, sharply higher than Rs2.85 trillion 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 per cent 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 per cent 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 Rs3 trillion 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 per cent in 2024, when the country will hold presidential elections.
The cabinet had already approved raising Value Added Tax (VAT) by 3 per cent from Jan. 1 and broadening collection.
The government has projected a primary account deficit of 0.6 per cent of GDP, slightly smaller than 0.7 per cent in 2023, with the IMF requiring the nation to reach a primary surplus of 2.3 per cent by 2025 and reduce its debt to GDP to 95 per cent by 2032.
The debt to GDP ratio stood at 113.8 per cent as of end-December.
Meanwhile Sri Lanka’s consumer price inflation rate eased to 0.8 per cent year-on-year (y-o-y) in September from 2.1 per cent in August, the statistics department said.
The National Consumer Price Index captures broader retail price inflation and is released with a lag of 21 days every month.
Food prices fell 5.2 per cent in September after declining 5.4 per cent in August, from a year earlier, the Department of Census and Statistics said in a statement.
Prices for non-food items, however, climbed 5.9 per cent in September after rising 9 per cent year-on-year in August.
Sri Lanka experienced record high inflation after its economy was pummelled by the worst financial crisis in decades.
But since June, its inflation has come down sharply, partly due to the statistical base effect, but also helped by a stronger rupee currency, and improved harvests.
Sri Lanka’s sovereign dollar bonds fell more than 2 cents last week, Tradeweb data showed, after authorities from the island nation expressed “serious reservations” about a debt restructuring proposal put forward by international bondholders.
Sri Lanka is in the midst of a debt restructuring after defaulting last year during a punishing economic crisis. The November 2025 maturity fell at the quickest pace, losing 2.45 cents as of 0946 GMT, but most of the country’s sovereign dollar bonds had lost 2 cents or more.
International bondholders sent a proposal to the government on Oct. 2 on how to overhaul its $12 billion of Eurobonds that envisaged a write-down, or haircut, on both capital and interest as well as the issuance of a so-called macro linked bond.
The plan, which was widely seen as beneficial for the country’s bondholders, saw bond chalk up some healthy gains in recent days.
But Sri Lanka’s finance ministry said in a statement dated Oct. 18 that the country was not happy with proposal.
“The authorities have already expressed to the bondholders’ their serious reservations about the construct of the macro-linked bonds proposed by the group,” it said in the statement.
Separately, Japan’s top currency diplomat said one more push was needed to resolve Sri Lanka’s debt problems.