Budget 2024: Yet another typical Sri Lankan budget

Another budget has been presented. Is it merely another budget, or does it differ from those in the past? These are loaded questions, given the distinct environment in which the 2024 budget was presented. However, it seems that the 2024 budget is not fundamentally different from its predecessors.Why do we say this? The main reason is the overly ambitious projections concerning government revenue, budget deficit, and expenditure. In every budget, Sri Lanka aims for the moon but often fails to even reach the stars. For example, in 2023, the government projected a 65 percent increase in revenue over 2022, but this was missed by a large margin.

This time, Sri Lanka aspires to raise over Rs. 4 trillion in revenue, up about 45 percent from 2023, with estimated expenditures at about Rs. 7 trillion. The budget deficit is projected at 7.6 percent, down from 8.5 percent in 2023 and at 9.1 percent with bank recapitalization.As in previous years, these are highly ambitious projections, as most budget proposals in Sri Lankan budgets never get implemented. To achieve these revenue targets, the main proposal revolves around the 3 percent Value-Added Tax (VAT) approved prior to the budget.

Additionally, the government heavily relies on strengthening the country’s tax administration to broaden the tax net and improve collection. However, the question remains: Can these be done as quickly as desired? Unlikely, considering the discussions about strengthening the tax system have persisted for years.One positive aspect of this budget is that authorities have recognized they can’t impose more taxes on the people. However, it is unclear whether this understanding or the impending elections next year influenced the government’s decision not to impose additional taxes or increase existing rates.

President Ranil Wickremesinghe admitted during his budget speech that the 2024 budget is an election budget, although different. He stated that this budget would introduce measures crucial to the long-term economic development of Sri Lanka. While the budget isn’t all negative, with progressive measures like strengthening the tax system and plans to establish a National Economic Commission and Sri Lanka Revenue Authority and so on, the key lies in implementation. Sri Lanka significantly lags in implementing budget proposals, as seen in the non-implementation of the tax ombudsman and the presidential tax commission proposed in the 2023 budget, to name a few.

The primary focus of the 2024 budget was evidently to address the demands of the International Monetary Fund (IMF) while simultaneously managing public sentiment in light of the upcoming elections. Securing the second tranche of the IMF loan facility is key to Sri Lanka’s effort to restructure the country’s foreign debt. In this context, it is indeed a tightrope budget. Currently, Sri Lanka is in a dilemma. 

The country needs to increase government revenue to appease the IMF and consolidate its fiscal front. However, imposing more taxes on the people is not feasible, as it has reached a critically breaking point. Simultaneously, the government cannot cut expenditure amid increased welfare spending and a bloated public sector.

As President Wickremesinghe revealed in his 2024 budget speech, Sri Lanka has a public sector of 1.3 million people and about 700,000 pensioners. Although their contribution to the country’s economy remains minimal, about 60 percent of the revenue proposals mentioned in the 2024 budget aim to maintain this public sector. 
In conclusion, it is evident that Sri Lanka’s challenges are deeply rooted and cannot be fixed solely by a budget. Whether we accept it or not, the repercussions of the current crisis will linger for at least the next five to ten years, and quick solutions are unlikely to produce lasting results.