By: Staff Writer
October 22, Colombo (LNW): The Sri Lankan economy has shown significant recovery in 2024, marked by growth in GDP, improved tax revenue, low inflation, and increased foreign currency reserves.
In the first half of 2024, the country’s economy expanded by 5.0%, while tax revenue saw a notable rise of 41.4%, reaching Rs. 2,348.5 billion by August compared to the same period in 2023.
Additionally, inflation turned into a deflation of 0.5% in September 2024, and Gross Official Reserves increased to USD 6.0 billion, bolstered by a swap arrangement with the People’s Bank of China as of the end of August 2024.
The Sri Lankan rupee also strengthened, appreciating by 8.2% by the end of September 2024. These improvements were driven by reforms under the International Monetary Fund’s Extended Fund Facility (IMF-EFF), which supported economic stability and improved living standards.
The government’s focus on maintaining macroeconomic stability and restoring debt sustainability aims to achieve a medium-term primary balance target of 2.3% of GDP by the end of 2025.
Sri Lanka surpassed the IMF’s annual primary surplus target, reaching an estimated 2.1% of GDP in the first eight months of 2024. The Ministry of Finance’s Pre-Election Budgetary Position Report 2024 revealed a substantial increase in the primary balance, which improved to Rs. 648.8 billion from Rs. 55 billion during the same period in 2023.
Despite this progress, it was a slight decline from the 3.7% of GDP recorded earlier in the year. The Ministry remains confident in achieving the primary balance of 1.0% set under the second IMF-EFF review.
Capital Alliance Limited (CAL) highlighted that exceeding this target could accelerate Sri Lanka’s debt reduction, further stabilizing the country’s financial health.
The budget deficit was reduced to Rs. 911 billion, down from Rs. 1,470.7 billion in the same period in 2023, driven by higher revenue and slower growth in government expenditure, especially in welfare.
Government revenue, including grants, grew by 40.5% to Rs. 2,565.9 billion in the first eight months of 2024, realizing 62.2% of the annual estimate of Rs. 4,127.0 billion. VAT collections also surpassed expectations, exceeding the entire 2023 figure of Rs. 694.5 billion within the first eight months of 2024.
The Ministry of Finance stressed the need to sustain and enhance revenue generation by focusing on tax compliance, eliminating tax leakages, digitalizing processes, and minimizing corruption.
Meanwhile, overall government expenditure grew moderately by 5.4% to Rs. 3,476.9 billion, accounting for 49.8% of the expenditure estimate for 2024. This increase was mainly due to higher salaries, wages, and interest payments on both domestic and foreign debt.
Foreign debt interest payments rose by 34.9% to Rs. 100.0 billion, partly due to the commencement of bilateral loan repayments. However, interest payments on domestic loans showed only a slight increase.
Expenditure on subsidies and transfers grew slightly by 1.5%, while capital and net lending saw a substantial increase of 22.4% in the first eight months of 2024.
Overall, Sri Lanka’s economy is on a path to recovery with improvements in fiscal stability and efforts to streamline revenue and expenditure, setting the stage for a more stable economic outlook in the coming years.
