SRI LANKA’S ECONOMIC CROSSROADS: STABILITY AHEAD OR ANOTHER CRISIS?

The year has not yet concluded, which means a final assessment of the government’s fiscal position for the year cannot be made with certainty. A complete evaluation will only be possible once year-end statistics are compiled and published. However, since official fiscal data up to the end of November is already available, we can derive a reasonably clear picture of the situation.

Government revenue and expenditure must be compared against the original annual budget estimates presented at the beginning of the year. The budget covers the entire year; no separate official estimate exists for the first eleven months. Therefore, this assessment is made in reference to the annual budget targets.

Budget Estimates (Rs. Billion)

Category	Estimate (Annual)
Tax Revenue	4,590
Non-tax Revenue & Other Receipts	400
Borrowings (Deficit Financing)	2,200
Total Revenue + Borrowings	7,190

Expenditure Category	Estimate (Annual)
Interest Payments	2,950
Other Recurrent Expenditure	2,936
Capital Expenditure	1,304
Total Expenditure	7,190

Performance up to November 2024

1. Tax Revenue

By the end of November, tax revenue had reached Rs. 4,612 billion, meaning the annual target has already been achieved and surpassed with one month remaining. This indicates strong revenue performance in comparison to expectations.

2. Non-tax Revenue & Other Receipts

Non-tax receipts stood at Rs. 350 billion by end-November, slightly below the annual target. However:

• Media reports confirm that USD 100 million (~Rs. 31 billion) was received from India in December.
• Additional aid and December dividend inflows from state enterprises are also expected.

Therefore, reaching the Rs. 400 billion target appears likely, with no major uncertainty.

According to President Ranil Wickremesinghe’s statement on December 19, total revenue collected by December 15 was Rs. 5,125 billion, which is 102.7% of the expected total revenue. Importantly, this figure excludes grants.

3. Interest Expenditure

Estimated annual interest cost: Rs. 2,950 billion
Actual by November: Rs. 2,268 billion (≈76.9%)

This suggests that the total interest cost for the year may remain below the initial estimate.

4. Other Recurrent Expenditure

Actual spending by November: Rs. 2,374 billion (80.9%)
This implies spending is under control, with moderate room for increased expenditure during December if required.

5. Capital Expenditure

Actual capital expenditure by November: Rs. 646 billion (49.5%)

Capital spending remains far below the allocation—likely due to prioritizing fiscal discipline.

6. Budget Deficit

Budgeted deficit: Rs. 2,200 billion
Actual deficit by November: Rs. 326 billion

Even allowing for increased year-end spending, a notably lower-than-expected deficit is almost certain.

What Do These Numbers Indicate?

The data clearly shows:

• Revenue has improved significantly, exceeding budget targets.
• Expenditure restraint is visible, especially in capital spending.
• The deficit remains far below projections, indicating successful fiscal consolidation.

Higher revenues were partly driven by the rebound in vehicle imports, among other factors. However, the key takeaway is not the source of revenue growth, but the fact that revenue performance has exceeded expectations.

Debt Sustainability and External Sector Risks

A statement on Sri Lanka’s debt sustainability was recently circulated with signatures from Joseph Stiglitz and 120 academics/activists. Some misinterpreted this as a document authored by Economatta, though it was actually issued by the UK-based NGO “Debt Justice”, which campaigns for debt relief in developing countries. Many familiar signatories also supported earlier debt appeals during the initial restructuring phase.

This time, the discussion was linked to climate vulnerability, drawing global environmental advocates into the conversation. However, while disasters like Dithwa cyclone increase vulnerability, historical evidence shows Sri Lanka has faced periodic natural disasters long before modern climate discourse.

Advocating for debt relief is not problematic. The concern arises only when the appeal is framed around the assumption that Sri Lanka is inevitably heading toward another default.

Is Sri Lanka on Track for Another Default?

Every country carries some degree of default risk — even the United States and Japan. Sri Lanka’s risk is undoubtedly higher due to its recent crisis. Yet, the core question is:

Is the risk manageable?

Based on current fiscal performance, the answer leans toward yes—if discipline is maintained.

Sri Lanka is not guaranteed to fall into another default. The present numbers indicate improvement, revenue strength, and contained expenditure trends. This is not a sign of collapse, but rather of early recovery—fragile, but real.

Conclusion

Sri Lanka has demonstrated notable fiscal progress in 2024. Revenue targets have been exceeded, expenditure has been contained, and the deficit is far below expectations. While external sector instability and debt restructuring outcomes remain crucial factors, the data does not support claims that the country is inevitably heading toward another default.

Long-term sustainability will depend on:

• maintaining tax reforms and broadening the revenue base
• completing debt restructuring effectively
• boosting export earnings and foreign inflows
• sustaining economic growth momentum

If these policies continue, Sri Lanka holds the capacity to navigate risk and move steadily toward more stable and sustainable public finance.