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On February 17, 2025, Sri Lanka’s newly elected President Anura Kumara Dissanayake will present his administration’s inaugural budget to Parliament. This highly anticipated event marks a pivotal moment for the nation, as it seeks to balance ambitious election promises with the stringent requirements of a $2.9 billion International Monetary Fund (IMF) bailout program. For businesses, investors, and citizens alike, the 2025 budget is not just a financial roadmap—it’s a litmus test of the government’s ability to deliver economic stability, foster growth, and provide relief to a population still reeling from the effects of a severe financial crisis. Here’s what we can expect from this landmark budget and its implications for Sri Lanka’s business landscape.
A Balancing Act: IMF Targets and Social Welfare
Sri Lanka’s economic recovery has been closely tied to the IMF bailout secured in March 2023. Since then, the country has made significant strides, with the World Bank projecting a 3.5% growth rate for 2025. However, the IMF’s conditions remain stringent, requiring the government to reduce the budget deficit to 5.2% of GDP (from 7.6% in 2024) and boost public revenue to 15.1% of GDP. These targets are non-negotiable if Sri Lanka is to secure the next tranche of approximately $333 million and improve its credit rating, a critical step toward re-entering international financial markets by 2028.
President Dissanayake, leading the National People’s Power (NPP) coalition, campaigned on a platform of social justice and economic relief for the poor. This creates a delicate balancing act: delivering on populist promises while adhering to fiscal discipline. Analysts expect the budget to prioritize social welfare measures, such as subsidies for essential goods, increased healthcare funding, and support for low-income households. However, these initiatives will likely be carefully calibrated to stay within IMF parameters, avoiding excessive borrowing or expenditure that could jeopardize the bailout program.
For businesses, this means a stable macroeconomic environment is likely to persist, but significant tax relief or large-scale stimulus packages may be limited. The government has signaled that no new taxes will be introduced, providing some reassurance to the private sector. However, existing taxes, such as the Value Added Tax (VAT) and corporate income tax, are expected to remain in place to meet revenue targets. Companies should prepare for a continuation of the current tax regime, with potential adjustments to tax administration or enforcement to improve collection efficiency.
Public Sector Reforms and Wage Increases – 2025 Budget
One of the most closely watched aspects of the 2025 budget is the promised pay hike for public sector employees. With over 1.2 million workers in the public sector, this measure is a cornerstone of the NPP’s pledge to alleviate economic hardship. Government officials have hinted at a modest increase, likely in the range of 10-15%, to be implemented in phases to manage fiscal impact. This move is expected to boost consumer spending, providing a much-needed stimulus to retail, manufacturing, and service industries.
However, the government has emphasized that any wage increase will remain within IMF guidelines, meaning the funds will likely come from reallocating existing resources rather than increasing the deficit. Additionally, recruitment in the public sector will be limited to filling essential vacancies, signaling a cautious approach to expanding the government workforce. For businesses, this could translate into increased demand for goods and services, particularly in urban centers where public servants are concentrated. However, firms relying on government contracts may face delays or reduced opportunities as the administration prioritizes fiscal consolidation.
Infrastructure and Investment: A Cautious Approach
Infrastructure development has long been a driver of economic growth in Sri Lanka, and the 2025 budget is expected to allocate funds for ongoing projects, particularly in transportation, energy, and rural development. However, the scale of investment may be tempered by fiscal constraints. The government is likely to focus on completing existing projects rather than launching ambitious new initiatives, ensuring that resources are used efficiently.
Foreign direct investment (FDI) will remain a priority, with the budget likely to include measures to enhance Sri Lanka’s attractiveness to investors. This could involve streamlining regulatory processes, offering incentives for export-oriented industries, and strengthening the Board of Investment (BOI). The recent withdrawal of Adani Green Energy from a $1 billion wind power project underscores the challenges of attracting and retaining large-scale investors. The government may use the budget to signal its commitment to resolving such disputes and creating a
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