ECONOMYNEXT – Sri Lanka’s overall budget deficit fell 73 percent to 325 billion rupees and revenues grew 35.5 percent to 4945 billion rupees, as economic activity recovered and the central bank maintained monetary stability, missing its inflation target.
Up to November, there was a current account surplus in the budget, indicating that total revenues were higher than recurrent spending.
Tax revenues grew 36.8 percent to 4,611 billion rupees, and non-tax revenues grew 8.6 percent to 334 billion rupees, central bank data showed.
Sri Lanka has improved tax administration and hiked rates after a sovereign default triggered by aggressive macro-economic policy to target potential output during the last currency crisis and heavy foreign borrowings amid forex shortages from rates cuts in three earlier crises.
However, since September 2022 the central bank has run broadly deflationary policy, providing a strong foundation for people to pick up their lives broken by the currency collapse of 2022.
Over 2025 however concerns have been raised with the rupee falling to 310 to the US dollar from 290 a year earlier as the central bank selectively denied convertibility after buying dollars and keeping large volumes of excess liquidity unsterilized until they became import credits.
Concern has also been expressed about the central bank’s 5 percent inflation target.
Current spending expanded 8.6 percent to 4,641 billion rupees despite another state salary hike to cover lost purchasing power in the last currency crisis.
With revenues of 4,945 billion rupees and current spending of 4,641 billion rupees Sri Lanka has run a current account surplus of 204 billion rupees until the November.
Sri Lanka has been unable to run a current account surplus in the budget since the late 1980s.
Sri Lanka ran the last current account surplus in the budget, called the ‘gold rule of budgeting’ in 1987 with total revenues of 42.1 billion rupees, and recurrent spending of 39.5 billion rupees.
Whether Sri Lanka will be able to post the first current account surplus since 1987 is not yet clear as there are usually year end payment clearing and spikes in interest costs and bond discounts.
Sri Lanka is now running a current account surplus despite a very large debt and a high interest bill.
Sri Lanka has had high nominal rates, especially from the 1980s, with currency depreciation destroying capital.
Capex and net lending were 645 billion rupees up from 605 billion last year.
However, in December there are usually extra capital expenditure payments.
By year end capex was projected at 1,033 billion in the November budget and the IMF projecting 1,048 billion rupees.
Sri Lanka’s tax revenues expanded strongly amid almost East Asia style low-inflation-growth and output neared pre-crisis levels in the first 9 months of the year.
The cyclone has somewhat dampened excise revenues and badly hit sales of motor vehicles, which are taxed at high levels.
RELATED : Sri Lanka vehicle sales down 50-pct after Ditwah importers say, seeking penalty relief
When macro-economists trigger external crises with inflationary rate cuts, cars are among the first imports to be controlled, leading to reductions in revenues which analysts call a ‘cascading policy error’.
(Colombo/Dec28/2025)
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