Sri Lanka can lift revenue by 2% of GDP by 2029: World Bank

Sri Lanka could increase revenue by up to 2 per cent of GDP by 2029 without undermining growth or equity, according to the World Bank’s Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment. The country has made remarkable strides in stabilising its economy, undertaking one of the largest fiscal adjustments in its history—equal to nearly 8 per cent of GDP over three years.

The adjustment was also sharper and faster by international standards – when compared with more than 330 similar efforts in 123 countries worldwide since 1980. According to the review, Sri Lanka is now well-positioned to focus on making public finances work better for all citizens.

Sri Lanka can boost revenue by up to 2 per cent of GDP by 2029 without harming growth or equity, according to the World Bank.
Following significant fiscal stabilisation, the country is urged to focus on fairer taxation—especially direct taxes—and smarter spending.
Improved tax administration, efficient budgeting, and targeted reforms can enhance service delivery and support inclusive growth.

While fiscal measures helped restore stability, they have also placed pressure on households through higher indirect taxes and reduced real public-sector wages, and slowed growth due to lower public investment. The next phase of fiscal calibration should prioritise raising revenues in ways that support growth and fairness, and improve the quality of government spending.

The review recommends raising revenue more fairly and efficiently by shifting towards direct taxes—such as implementing a minimum corporate income tax—and by digitising tax administration to make compliance easier, more transparent, and efficient. On the spending side, it emphasises that neither increasing nor decreasing overall spending is feasible; instead, the focus should be on using existing resources more effectively. By spending smarter—improving efficiency, reducing waste, and enhancing service delivery—the government can achieve better outcomes without altering the total budget.

“Now that Sri Lanka has largely stabilised its economy, the challenge is to get better results from every rupee collected and spent,” said David Sislen, World Bank division director for Maldives, Nepal and Sri Lanka. “This means modernising tax administration, focusing on direct taxes, and making sure public spending is both efficient and fair—especially for the most vulnerable.”

Looking ahead, Sri Lanka can design the next phase of its public finance reforms to build long-term fiscal resilience. Strengthening links between planning and budgeting, improving accountability, and focusing on measurable performance outcomes will help deliver better services, support inclusive growth, and protect the most vulnerable.

Fibre2Fashion News Desk (RR)

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