COLOMBO, Nov 13 (Reuters) – Sri Lanka’s government projected a smaller-than-expected budget deficit for 2024 on Monday on the back of a big jump in revenues seen as crucial to sustaining an International Monetary Fund bailout programme.
The government has set a fiscal deficit target of 2.85 trillion Sri Lankan rupees ($8.73 billion) in 2024, or 9.1% of GDP, higher than the revised 8.5% of GDP in the current year. The original target for this year was 7.9%.
However, next year’s deficit target is lower than the 12% supported by the International Monetary Fund, after the fund warned of revenue shortfalls when reviewing the country’s public finances as part of a $2.9 billion rescue package.
The government also expects total tax revenues to reach Rs4.1 trillion for 2024, much higher than the current year’s Rs2.85 trillion, with the biggest jump coming from GST revenues, the budget document showed.
“This is a budget to build the foundation of Sri Lanka’s recovery. We cannot continue as a dependent people,” President Ranil Wickremesinghe, who is also the island nation’s finance minister, told parliament.
“To ensure that Sri Lanka does not collapse again, we must renew and recreate our economic and political systems.”
Sri Lanka’s economy contracted by 7.8% in 2022, forcing it to default on its foreign debt in its worst financial crisis since independence in 1948.
Budget spending is set at a record level of Rp6.98 trillion in 2024, an increase of nearly 33% compared to 2023, with capital spending doubling and Rp450 billion allocated to recapitalize banks.
“The budget deficit is smaller than expected, but if we include bank recapitalization provisions, the deficit will increase,” said Dimantha Mathew, head of research at First Capital Research.
Wickremesinghe said the island would allocate 3 trillion rupees to repay international sovereign bonds in 2024 after concluding ongoing debt restructuring talks with bondholders, and proposed raising Sri Lanka’s debt ceiling by 3.45 trillion rupees to 7.35 trillion rupees.
The central bank expects growth of 3.3% in 2024, when the country will hold presidential elections.
The Council of Ministers had already agreed to increase the value-added tax by 3% from January 1 and expand the scope of collection.
The government has projected a primary account deficit of 0.6% of GDP, just under 0.7%, in 2023, with the IMF asking the country to reach a primary surplus of 2.3% by 2025 and reduce its debt-to-GDP to 95%. By 2032.
The debt-to-GDP ratio reached 113.8% at the end of December.
($1 = 326.5000 Sri Lankan rupees)
Additional reporting and writing by Swati Bhatt; Edited by Shri Navaratnam, Miral Fahmy, and Bernadette Baum
Our standards: Thomson Reuters Trust Principles.