On Friday (6), the new Government passed its expenditure estimates or the Vote on Account without a vote in Parliament, managing to secure its expenses for the first four months of 2025.
However, this mini budget is a test of Government expectations and forecasts for 2025, as well as the first step towards Budget 2025 due in February next year.
Although the Vote on Account only depicts numbers, these numbers tell a bigger story of the Government’s vision for the crucial year of Sri Lanka’s economic recovery.
Rs. 2.6 t for primary expenses until April
Speaking in Parliament on Thursday (5), Deputy Minister of Economic Development Prof. Anil Jayantha Fernando said that the Government had allocated Rs. 1 trillion for recurrent expenses (excluding interest payments), while allocating Rs. 425 billion as capital expenses through the Vote on Account for the first four months of 2025.
He also said that the Government had allocated Rs. 1,175 billion for servicing debt obligations (excluding the restructured foreign debt), interest payments, and installments.
The Finance Ministry said that primary expenditure excluded interest cost and included Government expenditure on public sector salaries (Rs. 420 billion), pensions (Rs. 149 billion), essential welfare payments (Rs. 233 billion), and provision of public services, including healthcare (close to Rs. 200 billion), education (Rs. 206 billion), public transport, and maintenance of infrastructure, such as roads and irrigation.
Capital expenditure provides funding required to continue with work on ongoing development projects. General debt service includes the regular interest cost and capital repayments on past government debt.
Capital expenditure during the Vote on Account period is focused on ongoing initiatives, including allocations for healthcare-related capital spending (Rs. 23 billion), roads and public transport (Rs. 206 billion), education-related capital expenditure (Rs. 28 billion), and agriculture and irrigation (Rs. 38 billion).
Several public sector digitisation initiatives are also funded through the Vote on Account, including the e-NIC project, Government revenue digitisation projects, and the e-Grama Niladhari project, among others. Large-scale development projects, including the Central Expressway (Rs. 64 billion) and the Port Access Elevated Highway project (Rs. 10.5 billion) have also been provided allocations to continue work.
According to the allocations made to the ministries, the highest allocation of Rs. 220 billion is to the Ministry of Transport, Highways, Ports, and Civil Aviation and Rs. 186.02 billion to the Ministry of Finance, Planning, and Economic Development.
Other allocations include Rs. 170.4 billion to the Ministry of Public Administration, Provincial Councils, and Local Government; Rs. 161.9 billion to the Ministry of Health and Media; Rs. 142.9 billion to the Ministry of Defence; Rs. 92 billion to the Ministry of Education, Higher Education, and Vocational Education; and Rs. 67.36 billion to the Ministry of Agriculture, Lands, Livestock, and Irrigation.
Accordingly, Fernando said that the Government estimated the overall expenses for the first four months of 2025 to be Rs. 2.6 trillion.
The Deputy Minister said that the Government estimated a revenue of Rs. 1.6 trillion for the first four months while the borrowing limit was set at Rs. 1 trillion.
He added that should there be a delay in the completion of debt restructuring that would drag the process beyond the expected target of 31 December, the Vote on Account had provisions to increase the borrowing limit up to Rs. 4 trillion to restructure debt in 2025.
According to the Finance Ministry, in the process of restructuring international bonds, the Government will issue new bonds in exchange for existing bonds held by creditors. The gross value of the new restructured bonds is estimated at Rs. 3 trillion. This amount was previously approved by Parliament in the 2024 Budget.
Since the debt exchange is taking place in December this year, in the event there is some requirement for the settlements relating to the exchange to be executed in early 2025, the same allocation has been provided in the Vote on Account 2025 as well. If the bond exchange and full settlement are concluded in 2024, the Rs. 3 trillion will not be required in 2025.
Speaking to The Sunday Morning, Frontier Research Senior Macroeconomist Thilina Panduwawala said that due to the Vote on Account requirements, the overall figures allocated were simply a proportion of 2024 expenditure allocations for use in the January to April 2025 period.
Need to provide growth momentum
Speaking at the ‘Data for Development – A Breakfast Dialogue with Donors’ on Friday (6), Treasury Secretary Mahinda Siriwardana said the economy had stabilised but measures were now needed to provide further momentum for inclusive and sustainable growth.
“This is necessary to create jobs and generate income that will help rebuild the lives of all Sri Lankans,” he said.
However, he added that this growth could not come at the expense of economic stability as whenever the economy had stabilised following a shock in the past, Sri Lanka had been too eager to provide unsustainable fiscal and monetary stimulus to reinvigorate growth.
He noted that this had resulted in a rapid return to instability, which had characterised several stop-go cycles in Sri Lanka’s post-independence economic history.
“In the past, Sri Lanka’s economic policy has been volatile, vacillating from one extreme to the other based on political shifts. It is crucial that regardless of political changes, Sri Lanka adheres to some fundamental economic principles, such as fiscal discipline and sound monetary management,” he said.
Moreover, he said that there had also been various misconceptions in society that the elimination of corruption or the recovery of ill-gotten assets would enable the relaxation of fiscal discipline and tax relief.
He said that enhancing governance and eliminating corruption vulnerabilities were key priorities in the mandate of the new Government and that these objectives would be pursued with the highest level of commitment from all arms of Government.
“However, eliminating corruption will not on its own be a substitute for disciplined fiscal management,” Siriwardana said, adding that in the medium term, improving governance and addressing corruption vulnerabilities would help enhance revenue collection and improve public expenditure efficiencies as well.
He stressed that once such gains materialised, it would be possible to pass on these benefits to citizens in a manner that ensured revenue targets were still met.
However, he added that it would be a mistake to preemptively pass on such efficiency gains before they actually materialised, thereby compromising revenue targets and fiscal objectives.
Building on sound macroeconomic policy, Sri Lanka’s growth story going forward should be driven by sound fundamentals, particularly in terms of continuous productivity enhancement, which is the key to persistent real wage growth in an economy.
Siriwardana said that Sri Lanka also needed a qualitative shift from an inward orientation to growth, driven by non-debt creating inflows such as exports of goods and services and Foreign Direct Investment (FDI). “This would be crucial, particularly to ensure Sri Lanka’s future external debt sustainability,” he added.
Meanwhile, speaking to a media outlet, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said that the successful completion of the reviews so far under the International Monetary Fund (IMF) had ensured that Sri Lanka had been able to achieve stability on a multitude of fronts, including building up external buffers in terms of increased foreign reserves, containing inflation and anchoring inflation expectations, avoiding monetisation of the Government budget deficit, and achieving a surplus in primary balance, all while embarking on a revenue-based fiscal consolidation path.
“It is crucial we go through the programme and complete it successfully,” he said.
Economic stabilisation
Deputy Minister Fernando said that the tax revenue to GDP ratio, which stood at over 20% in the 1990s, had gradually come down to below 10%, although tax rates had gradually increased over the years.
“If tax revenue has come down even though tax rates have increased, it means that there are many issues within the management of Government revenue,” he said, adding that one of those issues was corruption within the system.
Moreover, he said that in recent years, there had been a deficit in the trade account, sometimes reaching close to $ 10 billion annually, which was covered using remittances from migrant workers.
He said that although remittances were used to manage that deficit, Sri Lanka did not have proper buffers in place to manage the deficit during a crisis.
“We said during election campaigning that we are getting a country that was not under normal economic circumstances, so our first priority was the economic stabilisation programme,” he said.
He added that under the economic stabilisation programme, achieving macroeconomic stability, financial stability, international transaction stability, and social stability were key for the Government.
Noting that the IMF programme was intertwined with the economic stabilisation programme, he said: “We said that we won’t go beyond the parameters set out by the IMF but will negotiate within those parameters to suit our policies.”
Production economy to take the lead
Deputy Minister Fernando said that the Government had spoken about a production economy during the election period, since although Sri Lanka had completed the economic stabilisation programme and moved to the next step, the country should increase the production of goods and services to come out of the economic crisis.
He said that due to the significant delay in the completion of debt restructuring, especially the restructuring of International Sovereign Bonds (ISBs), accrued interest payments amounting to $ 1.7 billion had to be paid by the Government.
“Stabilising society was an important aspect of the economic stabilisation programme; we need to include the manpower in the country in the production of goods and services and it should be done quickly,” he said.
However, he said that more than half of the population was in a state of asking for allowances, and therefore, while creating opportunities for them, the Government needed to provide allowances to get them back on their feet.
He said this was why the Government was going beyond the existing allowances to the vulnerable, especially farmers and fishermen.
He further noted that the Government had proposed providing an allowance of Rs. 6,000 through the Vote on Account for children in families receiving ‘Aswesuma’ to obtain school stationery.
Fernando added that the Government intended to empower women and increase their participation in the labour force.
The Finance Ministry said that Government’s focus on public welfare was evidenced by the substantial allocations for priority welfare initiatives, including ‘Aswesuma’ (Rs. 80 billion), medical supplies for hospitals (Rs. 65 billion), school nutrition (Rs. 11.3 billion), fertiliser subsidies (Rs. 16.5 billion), and education-related welfare expenditure (Rs. 16 billion), such as school textbooks, uniforms and shoes, sanitary napkins for school girls, and Mahapola and bursary scholarships.
Agriculture and digitalisation
Fernando said that the priority sector in Budget 2025 would be agriculture, where the focus would be on how to implement modernised agriculture in Sri Lanka.
He said that the Government intended to expand the value chain in agriculture rather than producing the primary products for domestic and export purposes and “thereby produce value-added goods and services within the agriculture sector”.
He noted that improvement in the research and development sector would help the Government develop the agriculture sector to produce new goods and services and access new markets.
Moreover, he said that digitalisation would improve the efficiency of producing goods and services while also helping to create a new sector of ‘IT elites’. “Digitalisation will help to improve the efficiency of nationwide production and governance,” he said.
Further, he said that Sri Lanka should address inequality in income distribution in society, given that in certain sectors, even if the salaries were raised to the maximum limit, people still struggled to have a decent lifestyle.
Providing an example, he pointed to the tea plantation sector, noting that although debates raged about increasing the daily wage to Rs. 1,700 or Rs. 2,000, it was uncertain whether plantation workers could survive on Rs. 1,700 within the existing economic conditions.
“Equal division of income distribution cannot be done through laws and regulations but through improving the country’s production,” he added.
Opp. awaits delivery of tax promises
Speaking in Parliament on Friday (6), Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva said that since the Government was expecting Rs. 1.6 trillion in revenue in the first four months of 2025 through the Vote on Account, it could be said that it was expecting Rs. 4.8 trillion as total revenue for the year, which could be approximated to Rs. 5 trillion.
“We don’t know whether there is an ability to increase more than this by making huge changes through Budget 2025,” he said.
Moreover, he said the Rs. 3.2 trillion reserved for debt restructuring was just a book entry that had also been done in the 2023 and 2024 Budgets.
“Let’s see how the Government will not tax individuals earning between Rs. 100,000 to Rs. 200,000 as promised,” he said.
He said that the Government had also promised to remove the Special Commodity Levy after 31 December and impose an 18% Value-Added Tax (VAT) on imported food items. “But during campaigning, they said that they would not impose VAT on food items,” he added.
He said that the Opposition was waiting to see what the Government would do to the digital services tax and whether it would charge an additional tax on vehicle imports.