Sri Lanka targets to cut budget deficit to 6.8% of GDP in 2023

• Govt. says ambitious fiscal targets will be achieved via a series of tax increases, austerity measures and SOE restructuring 
• State revenue expected to increase to 11.3% of GDP, from projected 9.1% this year; expenditure to be reduced to 18.1%, from 18.9%

The government targets to contain the fiscal deficit to 6.8 percent of the gross domestic product (GDP) in 2023, from the projected 9.9 percent this year, through a series of tax increases and austerity measures, including restructuring of the state-owned enterprises (SOE).

The Cabinet of Ministers on Monday approved a proposal presented by President Ranil Wickremesinghe, in his capacity as the Finance, Economic Stabilisation and National Policies Minister, to prepare Budget 2023 based on zero-based budgeting and in line with the 2023-2025 medium-term fiscal policy framework.

Accordingly, state revenue is expected to increase to 11.3 percent of GDP, from the projected 9.1 percent this year, while the government expenditure is to be reduced to 18.1 percent of the GDP, from the projected 18.9 percent for this year. The government targets to reduce the primary deficit in the budget to -1.0 percent of GDP, from projected -4.0 percent for this year.

Cabinet Spokesperson and Transport, Highways and Mass Media Minister Bandula Gunawardena highlighted that the government revenue-based fiscal consolidation measures along with expenditure rationalisation measures, including restructuring of the SOEs, would be utilised to restore fiscal stability in the medium term. He stressed that the loss-making SOEs can no longer be funded with the Treasury funds to continue their operations. 

“Either we will have to consider shutting down some of the loss-making SOEs or look at other alternative options,” he said. 

In the medium term, the government targets to contain the budget deficit to 5 percent of GDP while achieving a primary surplus.

Along with the fiscal targets, the Government Information Department highlighted that the wide economic impacts should also be taken into account in preparing Budget 2023, in order to support the economic recovery of the country.

“Amidst the economic challenges in relation to the above, the preparation of the budget for the year 2023 within the median budget framework of 2023-2025 should be performed with prudent and strategic means while measures should be taken to prevent more intensity and lay the foundation to future sustainability,” it elaborated.