Sri Lanka has crossed its mid-year revenue targets with surprising resilience, but behind the numbers lie deeper concerns. Rising debt, high expenditure, and import-driven revenue gains beg the question: is the 3.1% economic growth forecast truly sustainable, or is the country merely buying time?
The Government Finance Committee convened this week in Parliament under the chairmanship of Dr. Harsha de Silva to evaluate the nation’s fiscal health. Reviewing revenue, expenditure, and debt during the first half of 2025, Finance Ministry officials delivered a cautiously optimistic assessment: Sri Lanka has exceeded mid-year revenue expectations, but long-term pressures remain significant.
Revenue Surpasses Expectations
According to the Ministry of Finance, the government collected Rs. 2,318 billion in revenue from January to June 2025, surpassing the half-yearly estimate of Rs. 2,241 billion by 3%. Officials noted this represents a marked improvement compared to the same period in 2024.
Customs and Inland Revenue both played central roles in this achievement. The Inland Revenue Department reported Rs. 1,040,388 million against a target of Rs. 1,022,691 million, noting the issuance of 1.3 million Tax Identification Numbers (TINs) to citizens over 18. Meanwhile, Sri Lanka Customs contributed Rs. 996 billion, a 47% year-on-year increase, thanks largely to a surge in automobile imports, which generated Rs. 429 billion. Since the reopening of vehicle imports, 220,026 vehicles have entered the country, with 154,537 already cleared.
While these figures suggest progress in revenue mobilization, members of the committee pressed officials about inefficiencies. Importers have complained that container clearance can take 9–10 days, hurting business activity. Customs officials responded by promising a new system to reduce clearance times to 2–3 days.
Expenditure Rises Sharply
Despite revenue gains, expenditure continues to outpace income. The government spent Rs. 3,467 billion in the first six months of 2025, up Rs. 367 billion from the same period in 2024. The largest burden remains debt servicing, which totaled Rs. 1,984 billion in just six months.
Other recurrent costs have also risen, including public sector salaries, pensions, and social safety net programs such as Aswesuma and Samurdhi. While these expenditures protect vulnerable populations, they leave little room for capital investment or long-term growth strategies.
Growth Forecast: 3.1% for 2025
Amid this backdrop, Finance Ministry officials projected that Sri Lanka’s economic growth for 2025 will hover around 3.1%. They described this as an achievable target given the current pace of revenue collection, despite pressure from inflation, debt servicing, and external vulnerabilities.
Committee Chairman Harsha de Silva, however, emphasized the importance of monitoring policy decisions closely, including the impact of tax policies on industries such as tobacco. Members also raised concerns over discrepancies between the Central Bank of Sri Lanka and the Ministry of Finance regarding foreign reserves by year-end, underscoring the uncertainty surrounding macroeconomic stability.
Imports Drive Recovery; But at What Cost?
Much of the revenue boost has been fueled by increased imports, particularly vehicles. While Customs revenue has spiked, economists warn that heavy reliance on import taxation is unsustainable. It creates a short-term fiscal cushion but does little to stimulate export growth or address structural weaknesses in the economy.
If global oil prices rise or demand for imports slows, revenue collection could quickly decline, undermining the fiscal balance.
Tax Reforms and Digitalization
Finance officials highlighted the importance of strengthening direct taxation. With TIN registration expanding rapidly, the government hopes to reduce reliance on indirect taxes, which disproportionately affect lower-income households.
The Ministry stressed the need for modernizing tax administration, digitizing systems, and ensuring compliance. These reforms are expected to broaden the tax base and make revenue growth more sustainable.
Committee Discussions: Key Issues Raised
The Finance Committee also debated several pressing concerns:
- Customs Delays: Business leaders complain about inefficiencies in container clearance. Officials pledged reforms to reduce delays to 2–3 days.
- Cigarette Tax Policy: The committee instructed the Finance Ministry to present its stance on cigarette taxation, given its revenue importance and health implications.
- Debt and Reserves: Members expressed concern about conflicting forecasts from the Central Bank and Finance Ministry on foreign reserves, signaling possible fiscal risks later in the year.
Balancing Optimism with Reality
Sri Lanka’s mid-year revenue achievement demonstrates resilience and administrative improvements. However, the broader picture is less encouraging. Expenditure continues to outstrip revenue, debt servicing dominates the budget, and much of the fiscal progress depends on import-driven revenue.
Without deeper structural reforms in exports, productivity, and domestic investment, the 3.1% growth forecast risks being a ceiling rather than a springboard.
Sri Lanka has surpassed revenue expectations for the first half of 2025, giving the impression of fiscal stability. Yet beneath the surface, debt pressures, high expenditure, and reliance on imports remain unresolved. The 3.1% growth forecast may be achieved, but sustaining it beyond 2025 will require bold reforms in taxation, spending efficiency, and economic diversification.
The wheel of progress has turned, but whether it keeps turning smoothly depends on whether policymakers act beyond the numbers.
