Sri Lanka’s public finance outlook is showing promising signs of recovery in 2025, with the government’s revenue collection accelerating steadily during the first five months of the year. According to the Central Bank of Sri Lanka (CBSL), total revenue and grants reached Rs. 1,942 billion from January to May 2025, marking a significant 20% year-on-year increase compared to Rs. 1,619 billion collected during the same period in 2024.
This notable growth in revenue is the result of deliberate fiscal reforms, increased tax compliance, and digitalisation efforts that are beginning to pay dividends. As the government continues its path toward fiscal consolidation, these developments signal a positive shift in Sri Lanka’s economic management.
Strongest Monthly Collection in May 2025
May 2025 stood out as a record-breaking month, with the government collecting Rs. 486 billion—the highest monthly total for the year so far. This figure exceeded April’s Rs. 387 billion and March’s Rs. 306 billion, reflecting not just seasonal collection patterns but sustained improvement in tax administration and enforcement.
One of the key factors contributing to this revenue boost was the extension of tax coverage to private motor vehicle owners in March. This move brought a new group of taxpayers into the formal system, generating additional revenue without increasing tax rates. It reflects a smarter and more inclusive approach to fiscal policy in Sri Lanka.
A Welcome Decline in the Budget Deficit
While revenues surged, government expenditure grew at a slower pace. Total expenditure during the first five months of 2025 reached Rs. 2,179 billion—a 9.7% increase compared to the same period last year. The relatively slower rise in spending, paired with higher revenue, led to a narrowing of the budget deficit to Rs. 236.6 billion, down from Rs. 366.8 billion during January–May 2024.
This decline in the budget deficit is particularly important in the context of Sri Lanka’s ongoing efforts to rebuild economic credibility after years of fiscal stress. With IMF-backed reforms underway and investor confidence still fragile, improved budget discipline is a strong signal to both domestic and foreign stakeholders.
Domestic and Foreign Financing Shifts
Another critical area showing progress is the government’s reliance on financing. Domestic financing requirements dropped to Rs. 298.6 billion, down from Rs. 394.4 billion in the same period last year. On the foreign financing front, the government registered a net repayment of Rs. 62 billion, in contrast to Rs. 27.6 billion in net repayments last year.
This shift demonstrates a more cautious and sustainable borrowing strategy. Rather than leaning excessively on either domestic or foreign borrowing, the government is now prioritising debt repayments and reducing future liabilities—an essential aspect of stabilising Sri Lanka’s public finances.
Revenue on Track to Exceed 2024 Totals
To put the progress in perspective, Sri Lanka’s total government revenue for the entirety of 2024 stood at Rs. 4 trillion—a significant jump from Rs. 3 trillion in 2023. With Rs. 1.94 trillion already collected by May 2025, the government is well on its way to surpassing the previous year’s total.
This trajectory indicates that the fiscal reforms undertaken over the past two years—such as tightening tax administration, strengthening digital platforms, and expanding the tax base—are having a tangible impact.
The Role of Digital Platforms in Revenue Mobilisation
A crucial enabler of this improved performance has been the government’s push for digitalisation of public finance. The rollout of the GovPay platform earlier this year, which allows individuals and businesses to make tax and government payments online, has streamlined transactions and reduced leakages.
Digital transformation in tax administration improves transparency, enables better data analytics, and reduces the scope for evasion. Platforms like GovPay are also user-friendly and accessible, making it easier for citizens to stay compliant and for the government to track and manage collections.
Economic Implications for 2025 and Beyond
The momentum in revenue collection comes at a pivotal time. Sri Lanka’s economy, which contracted sharply in 2022 due to the balance of payments crisis, began showing signs of recovery in 2023 and 2024. However, long-term stability depends not just on short-term macroeconomic measures but also on strengthening the foundations of public finance.
With elections on the horizon and political discourse heating up, maintaining fiscal discipline will be critical. A robust revenue base enables the government to invest in infrastructure, public services, and welfare programmes without depending excessively on debt.
What Businesses and Investors Should Note
For the business community and investors—both local and foreign—this revenue growth presents a clear signal of stability. A predictable fiscal environment, backed by consistent revenue collection and controlled spending, creates a more attractive investment climate.
Moreover, improved public finance allows the government to support key economic sectors through targeted incentives and policy interventions. For entrepreneurs and small businesses, the benefits may come in the form of infrastructure development, streamlined regulatory procedures, and more efficient public services.
Looking Ahead: Challenges and Recommendations
Despite the positive outlook, several challenges remain. These include:
Tax compliance gaps in the informal sector
Rising global interest rates, affecting debt servicing costs
Currency volatility, which may impact import-based sectors
Political uncertainty, which can affect investor confidence
To sustain the current momentum, the government should:
Expand digital tax systems to cover all sectors and income groups
Strengthen enforcement mechanisms while ensuring taxpayer fairness
Increase public awareness about the importance of tax compliance
Maintain transparency in how revenues are allocated and spent
Avoid election-related overspending, which could undermine fiscal gains
Final Thoughts
Sri Lanka’s government revenue collection in 2025 is off to a strong start, and if the current trend continues, the country may well achieve or even exceed its annual fiscal targets. The narrowing budget deficit, reduced financing needs, and improved tax compliance indicate that the country is turning a corner in terms of economic governance.
For citizens, businesses, and investors alike, this momentum offers renewed confidence. While challenges remain, the foundations for a more resilient economy are being laid—one tax rupee at a time.
