Colombo, August 5: Sri Lanka’s public finances remain under pressure despite a sharp rise in tax revenues during the first half of 2025, highlighting the persistent challenges facing the island nation’s post-crisis recovery.
According to official figures released by the Finance Ministry, tax collections rose by 25% year-on-year, totaling 2.2 trillion Sri Lankan rupees. Non-tax revenue also climbed 12%, reaching 169.6 billion rupees. These gains, however, were offset by a 13% jump in government spending, which hit 2.5 trillion rupees. The rise in expenditure was primarily driven by higher public sector salaries and mounting interest payments on debt.
One positive sign came in the form of a 48% drop in the current account deficit, which fell to 185 billion rupees. Yet, Sri Lanka continues to fall short of the “golden rule” of fiscal policy: ensuring current revenues exceed current expenditures. The country has failed to achieve this benchmark since the late 1980s, contributing to repeated cycles of borrowing and financial instability.
Sri Lanka is still emerging from its worst economic crisis in decades, triggered in 2022 when it defaulted on external debt obligations for the first time in its history. While inflation has cooled and foreign reserves have gradually improved under an IMF-backed reform programme, analysts caution that structural fiscal weakness remains the economy’s Achilles’ heel.
Officials have reiterated the need for sustained reforms in public finance, including improved tax administration, rationalising state expenditure, and restructuring state-owned enterprises. However, with elections on the horizon and continued public sector resistance to austerity measures, political will remains uncertain.
The fiscal data comes at a critical juncture, as Sri Lanka negotiates with bilateral and multilateral creditors to restructure its remaining debt and regain market access.