Budget 2023 sticks to reform path with IMF nod pending

President Ranil Wickremesinghe presents Budget 2023

• President outlines need for massive economic reforms and restructuring
• Pledges to create new economy based on social market principles
• Says govt. debt will be reduced; fiscal deficit will be cut by boosting revenue
• SL entered staff-level deal with IMF in Sept.; executive board approval pending

With an International Monetary Fund (IMF) deal yet to be sealed, Budget 2023 presented to Parliament yesterday stuck with the reform path Sri Lanka had embarked upon after the economy crashed in April, as a result of bad economic policies followed for decades.

In his preamble to the budget proposals, President and Finance Minister Ranil Wickremesinghe outlined the need for “massive economic reforms and restructuring” to lay the foundation for a new economy based on social market principles. “I would like to define the new economy that we are going to build as a social market economy or an open economic system of social protection,” said Wickremesinghe.  In alignment with the IMF recommendations, Wickremesinghe said the government plans to reduce debt to less than 100 percent of GDP over the medium term, achieve economic growth of 7 percent and cut fiscal deficit to 7.9 percent in 2023, from an estimated 9.8 percent this year.

He said government revenue is expected to rise to 15 percent of GDP by 2025, from 8.3 percent at end-2021, with exports and foreign direct investment targets of US $ 3 billion each over the medium term. He also said the government is already targeting a primary surplus more than 2 percent of GDP in 2025 and expects it to improve upon this level thereafter. Sri Lanka in early September entered into a staff-level agreement with the IMF for a US $ 2.9 billion, four-year programme under the Extended Fund Facility.  

However, the programme is contingent on Sri Lanka following the agreed reform path, securing financing assurances from its creditors and obtaining the approval from the executive board of the IMF.

The urgency of restructuring the most fiscally significant SOEs was reiterated several times during the last six months. As proposed in the interim budget, a unit has already been established at the Finance Ministry, with the specific task of restructuring SOEs. 

The successful restructuring of the SOEs will help bring about improved operational performance, increased access to alternative sources of financing through domestic and international capital markets, financing for infrastructure development, reduced fiscal burden of SOEs and reduced corruption and improved transparency.