• 15.1% GDP revenue target crucial to meeting IMF programme goal
• Strong 2024 performance provides some fiscal flexibility

Sri Lanka will achieve the tax targets of the International Monetary Fund (IMF) through budget 2025, while the government will have to balance relief for people, Bloomberg Economics said.

Accordingly, it said that Sri Lanka’s President Anura Kumara Dissanayake needs to accommodate two conflicting objectives in this year’s budget - providing relief to the crisis-weary population through tax cuts and more welfare spending as he promised, and sticking to the fiscal consolidation path set out by the IMF.

“We think he could manage both, helped by a hefty primary surplus last year and a likely boost to revenues through a recent lifting of a vehicle-import ban,” it said.

Also, Bloomberg Economics said that the government will likely set a revenue target of 15.1% of GDP in the budget as it is a mandatory requirement by the IMF and that the government could attain this target.

It said that the removal of auto-import restrictions and hikes in excise duties on cigarettes and vehicles should add around 1.2% of GDP to revenues.

The introduction of a value-added tax on digital services and a corporate income tax on foreign service providers, as well as a higher corporate income tax rate on betting and gaming could add another 0.2% of GDP to revenues.

Bloomberg Economics expects the primary surplus likely came in at 3.4% of GDP last year - significantly above the IMF’s target of 1%. “We calculate, using data available through November, that the government spent much less than what the IMF had forecast,” it added.

“Total spending (excluding interest payments) probably amounted to 10.1% of GDP - lower than the IMF’s estimate of 12.4%. Meanwhile, it likely succeeded in collecting revenues in line with the IMF’s target of 13.5% of GDP,” calculations by Bloomberg Economics said.