Sri Lanka’s economic growth projections for 2025 are under close scrutiny following conflicting estimates presented by key state institutions, raising questions about the credibility of the country’s fiscal and monetary forecasting mechanisms.
At a recent review before the Parliamentary Committee on Public Finance (CoPF), Treasury officials expressed confidence that the economy could expand by 3.1% in 2025, citing stronger-than-expected fiscal performance in the first half of the year.
According to the Parliament Secretariat, CoPF Chairman MP Dr. Harsha de Silva pressed the Finance Ministry on whether the official growth target was achievable. Ministry representatives responded that their data supported a 3.1% expansion.
This figure, however, stands below the Central Bank’s more optimistic forecast of 4.5% and the International Monetary Fund’s (IMF) 3.5% projection, exposing a troubling divergence in Sri Lanka’s economic outlook.
Such discrepancies raise concerns over coordination between fiscal authorities and the monetary regulator, especially at a time when policy alignment is critical to investor confidence and debt restructuring efforts.
Finance Ministry officials highlighted that government revenue collection had exceeded expectations during January June 2025, with Rs. 2,318 billion raised compared to an estimated Rs. 2,241 billion, a 3% increase.
This contrasts sharply with the same period in 2024, where mid-year revenue targets were missed. Officials credited reforms in tax administration and compliance, including the expansion of Tax Identification Numbers (TINs) to 1.3 million adults, as contributing to the revenue surge.
Yet, expenditure pressures remain daunting. Total spending for the first half of 2025 amounted to Rs. 3,467 billion, up by Rs. 367 billion year-on-year. Debt servicing alone consumed Rs. 1,984 billion more than half of total expenditure.
Meanwhile, recurrent spending on salaries, pensions, and social welfare schemes such as Aswesuma and Samurdhi also expanded, tightening fiscal space for capital investment.
During deliberations, Dr. de Silva urged Treasury officials to brief the Committee on the government’s cigarette tax policy, pointing to broader concerns about tax structure and revenue sustainability.
The Committee also noted a mismatch between Central Bank and Finance Ministry projections on foreign reserves, suggesting possible risks in external stability assessments.
Inland Revenue Department (IRD) officials confirmed better-than-expected tax collections, recording Rs. 1,040 billion against an estimated Rs. 1,022 billion. Still, whether these fiscal gains can translate into sustainable growth remains uncertain, given the heavy debt burden and inconsistencies in official projections.
Why Do Forecasts Diverge?
Analysts point out that the Central Bank and the Treasury may be working with different assumptions, leading to a gap in their growth forecasts.
The Central Bank’s 4.5% projection is premised on stronger capital inflows, foreign reserve stability, and revival in private investment, banking on confidence gained through progress in the IMF-supported reform programme.
In contrast, the Treasury’s 3.1% estimate reflects a more cautious outlook, factoring in the drag from high debt servicing costs, limited fiscal space for development spending, and potential shortfalls in external financing.
Moreover, while the Central Bank tends to emphasize monetary stability, easing inflation, and banking sector resilience, the Treasury’s projections are tied more closely to fiscal realities such as tax collection, subsidies, and recurrent spending obligations. The result is a widening gap in how policymakers assess the economy’s recovery trajectory.
This misalignment is not merely technical, it has real implications. Divergent signals from two of the country’s most influential economic institutions could unsettle markets, complicate debt restructuring negotiations, and erode public confidence in economic management.
The mixed signals now leave policymakers, investors, and the public grappling with a crucial question: is Sri Lanka’s recovery on a steady path, or is the optimism overstated? With growth estimates diverging, transparency and policy alignment will be vital in the months ahead.
