Dr. Dayan Jayatilleka.
I crosschecked AKD’s Budget with the non-Marxist ex-academic based in a prestigious global organisation, whose expert opinion as a professional economist I esteem (and have quoted before). Here’s the 7-point diagnostic:
1.Unsustainable debt, fiscal mismanagement
Despite IMF assistance, Sri Lanka remains one of the highest interest-paying nations in the world, with 60% of government revenue consumed by interest payments. The 2025 Budget does little to address this crisis:
Total debt servicing costs will reach USD 3 billion in 2025, raising concerns about the government’s ability to meet obligations.
The government plans to borrow USD 2.3 billion from external sources, including USD 600 million from the IMF. However, Sri Lanka’s poor credit rating makes securing additional foreign loans extremely difficult.
Foreign exchange reserves stand at USD 6.1 billion, but only USD 4.7 billion is actually usable. With USD 3 billion in repayments due, reserves are insufficient to ensure financial stability.
The government relies on lower interest rates and primary surpluses, but interest payments have actually increased by 10%, reaching LKR 3 trillion.
This debt burden is structurally unsustainable. Without credible debt restructuring efforts, Sri Lanka risks another financial collapse.
2.Overstated revenue projections, deficit widening
The government forecasts a 24% increase in tax revenue, aiming to collect LKR 4.6 trillion, a figure that assumes tax compliance and economic expansion at unprecedented levels. However:
GDP is projected to grow by 10%, yet tax revenue is expected to increase by 33%. Such an assumption is historically unrealistic and economically impractical.
The budget relies heavily on indirect taxes, expecting a 35-40% rise in VAT and excise duties. This will inevitably drive up the cost of daily essentials, disproportionately impacting the lower and middle-income groups.
The government anticipates 60% growth in external trade taxes, a highly speculative assumption given Sri Lanka’s fragile export sector and global trade uncertainties.
Tax revenue targets also include LKR 340 billion from import duties and VAT on vehicle imports, assuming a surge in vehicle imports. This projection ignores the impact such imports will have on foreign exchange reserves.
Revenue shortfalls will widen the deficit, leading to increased borrowing and deeper economic instability.
3. Heavy indirect taxation
Despite claiming no direct tax increases, the government has shifted the burden onto indirect taxes, disproportionately affecting ordinary citizens:
Taxes on goods and services will increase by 35-40%, significantly raising the cost of essentials.
Withholding tax on interest and services has doubled from 5% to 10%, reducing disposable income.
Corporate tax hikes (from 40% to 45%) and higher capital gains tax (30%) may stifle investment and discourage business activity.
This will lead to higher inflation, increased living costs, and a greater financial strain on working people.
4. Election-driven expenditure
The budget heavily increases public sector wages and social spending, but these measures appear to be politically motivated rather than economically sustainable:
Public sector minimum wage has been increased by 50%, a massive fiscal burden at a time of economic instability.
Capital investment has risen from LKR 800 billion to LKR 1.3 trillion (a 70% increase), yet historically, when revenue shortfalls occur, capital expenditure is the first to be cut.
Infrastructure allocations (LKR 229 billion) focus on expressways and urban development, yet lack clear productivity-boosting measures for industries and SMEs.
While spending on social welfare, pensions, and public investment is necessary, the government’s approach is short-sighted and isn’t grounded in fiscal reality.
5.Unrealistic industrial and export growth assumptions
The government’s export target of USD 18 billion assumes 9% growth, a figure detached from economic realities:
Global trade disruptions, including the U.S.-China tariff wars and a European recession, make export growth highly uncertain.
The assumption that import duty revenues will rise without impacting external stability is flawed, as vehicle imports will deplete foreign exchange reserves.
Proposed industrial zones (Chemical, Rubber, Automotive) lack concrete investor commitments and do not provide meaningful incentives for domestic manufacturing.
Without a clear industrial strategy Sri Lanka’s economic growth will remain stagnant, making these ambitious projections meaningless.
6. IMF dependency, weak fiscal roadmap
While the budget adheres to IMF requirements, Sri Lanka’s track record of meeting IMF conditions is poor. Key risks include:
IMF disbursements of USD 600 million are conditional on achieving a 2.3% primary surplus, yet unrealistic revenue targets put this at risk.
Dependence on external borrowing means Sri Lanka remains vulnerable to external shocks, making economic recovery fragile.
Structural reforms are largely absent, making long-term growth highly uncertain.
Sri Lanka is walking a fiscal tightrope. The government has placed its hopes on IMF support and speculative revenue projections, but without fundamental economic restructuring, this approach is doomed to fail.
7.Political promises, not economic solutions
This budget is built on optimistic forecasts, weak fiscal discipline, and unsustainable policies. The reality is:
Revenue targets are unrealistic, meaning the deficit will likely widen.
Public debt is dangerously high, and interest payments continue to cripple economic recovery.
The indirect tax burden will hurt the most vulnerable, increasing cost-of-living pressures.
The government is prioritising election-driven spending over sustainable economic growth.
IMF dependency remains high, with no clear roadmap for financial independence.