Sri Lanka Achieves Largest Fiscal Adjustment in History, Says World Bank

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According to the World Bank, Sri Lanka has achieved significant progress in stabilizing its economy, carrying out the island nation’s largest fiscal adjustment to date, amounting to nearly 8% of GDP over three years, and completing it at a pace faster than most countries.
These views were expressed yesterday in a statement announcing the release of the latest diagnostic title, ‘Sri Lanka Public Finance Review: Towards a Balance Fiscal Adjustment.’ As the World Bank points out, Sri Lanka’s fiscal adjustments are sharper and faster by international standards when compared with more than 330 similar efforts in 123 countries since 1980.

According to the diagnostics review, Sri Lanka could increase its revenue by up to 2% by 2029 without undermining growth and equity. As such, the review recommended raising revenue more fairly and efficiently by shifting to direct taxes, minimizing corporate income tax, and digitizing tax administration, making paying taxes easier and more transparent.
The review also highlighted the need to enhance social protection by better targeting assistance, expanding the social registry, and moving away from universal subsidies to a more focused support system.

As David Sislen, the World Bank Division Director for Maldives, Nepal, and Sri Lanka, stated, “Now that Sri Lanka has largely stabilized its economy, the challenge is to get better results from every rupee collected and spent. This means modernizing tax administration, focusing on direct taxes, and making sure public spending is both efficient and fair, especially for the most vulnerable.