Thursday Sep 11, 2025
Thursday Sep 11, 2025
Wednesday, 10 September 2025 05:54 - - {{hitsCtrl.values.hits}}
The World Bank yesterday said Sri Lanka has made remarkable strides in stabilising its economy, undertaking one of the largest fiscal adjustments in its history, equal to nearly 8% of GDP over three years, and doing it faster than most countries.
In a statement announcing the release of its latest diagnostic title ‘Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment’, the World Bank said that this adjustment was also sharper and faster by international standards when compared with more than 330 similar efforts in 123 countries worldwide since 1980.
The review, a core World Bank diagnostic conducted every five years in member countries, concludes that Sri Lanka is well-positioned to focus on making public finances work better for all Sri Lankans.
“While fiscal measures helped restore stability, they also put pressure on households through higher indirect taxes and reduced real public-sector wages, and slowed growth due to lower public investment,” the statement said. “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 diagnostic review highlights that Sri Lanka could increase revenue by up to 2% by 2029 without undermining growth or equity. It also points out that better targeting and management of public spending can deliver improved outcomes within current budget limits.
The review recommends raising revenue more fairly and efficiently by shifting toward direct taxes, such as a minimum corporate income tax, and digitising tax administration to make paying taxes easier and more transparent.
It also recommends spending smarter, not more or less. The report stresses that it is not feasible to further cut or increase overall spending, but the best gains will come from using existing funds more efficiently to get better results.
This includes improving public sector wage management by protecting essential frontline services, simplifying pay structures, and modernising systems through which public sector workers are paid. It also entails reprioritising capital investments to close infrastructure gaps, completing ongoing projects faster, and strengthening project selection, management and maintenance.
Enhancing social protection by better targeting assistance, expanding the social registry, and moving from universal subsidies to more focused support for those who need it most, is another priority.
“Now that Sri Lanka has largely stabilised its economy, the challenge is to get better results from every rupee collected and spent,” said World Bank Division Director for Maldives, Nepal and Sri Lanka David Sislen. “This means modernising tax administration, focusing on direct taxes, and making sure public spending is both efficient and fair, especially for the most vulnerable,” he added.
