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Lanka should aim for revenues of 12-pct of GDP, avoid shortfalls: IMF
Sri Lanka should aim to get state revenues more than 12 percent of gross domestic product and avoid revenue shortfalls next year, International Monetary Fund Senior Mission Chief Peter Breuer said.
Sri Lanka projected revenues (including non-tax) of 3,408 billion rupee (11.3 -pct of GDP) and the IMF 3,286 billion rupees (about 10.9-pct).Up to July revenues were up 39 percent and tax revenues were up 43 percent, but IMF expects year end revenues to be 15 percent below target.
“Clearly the objective is not to let it happen next year and make up for that shortfall,” Breuer told reporters after Sri Lanka and the IMF reached a staff level agreement incorporating the next set of targets and reforms.
“So, one of the objectives is to get revenue that exceeds 12 percent of GDP and accordingly measures will have to be implemented to achieve that objective.”
Sri Lanka has met all quantitative targets, except for the June indicative revenue target, and most structural benchmarks required up to June have been completed, Breuer said. The new staff level agreement will set the targets and reforms for the next phase of the program.
In 2020 in the worst deployment of macro-economic policy by the country’s official economists and their advisors from the private sector, taxes were also cut on top of rates, eventually driving the country to external default. Revnues collapsed from 11.9 percent in 2019 to about 8.5 percent of GDP by 2021.
As forex shortages build up, Sri Lanka’s economic bureaucrats also ban vehicle and non-essential imports, hitting revenues and further worsening the fiscal picture, in an cascading policy error that repeats often, an economic observer said.
Car imports are still banned
Sri Lanka has now slammed high rates of progressive income tax which are hitting employed workers in the corporate sector, triggering a brain drain, particularly of professionals with young children who cannot make ends meet and keep paying housing loans. There are no exemptions for dependents.
A steep currency collapse has also hit alcohol consumption, with industry officials indicating a 40 percent drop from pre-crisis levels, though some firms are said to be avoiding paying collected taxes amid corrupt practices.
The IMF has recommended a series of reforms in a governance diagnostic report including for revenue authorities. Sri Lanka will have to implement “compensating measures” and improve tax administration to get more revenues, the IMF team said.
In the first stabilization year after rate cuts trigger a currency crisis, revenues are difficult to raise due to the slowdown. This year the economy is contracting and revenues are driven partly by inflation, analysts note.
By Shamindra Ferdinando
Iran has sought the Indian intervention, at the highest level, to provide lifesaving support to the crews of empty Iranian vessels stranded just outside Sri Lanka’s 12-nautical mile territorial waters off Galle.
Sources familiar with the issue said that Iran had brought the developing situation to the attention of New Delhi as the crews of almost 20 vessels, included Indian nationals. Sources stressed that the group of vessels that unloaded crude oil a couple of months back were now stranded within Sri Lanka’s Exclusive Economic Zone (EEZ).
The US Navy torpedoed an unarmed Iran frigate, returning from India, on 04 March, 2026, about 19 nautical miles off the Galle coast. The unprovoked attack killed nearly 100 Iranians.
The Iranian Embassy in Colombo has inquired from the Indian High Commission of their response to the situation, sources said. The US has issued a global warning against providing food, water, medicine and other services to the Iranian vessels. The outcome of Iran-India talks on the issue at hand was not known, though sources asserted India may not throw its weight behind Iranian efforts to address the issue.
Responding to The Island queries, sources said both Sri Lanka and India were in a dilemma due to the US warning. India couldn’t ignore the plight of the Indian crew members and the Iranian vessels in its backyard.
The Sri Lankan government remains tight-lipped about the vessels stranded in its EEZ. Our efforts to elicit a response from relevant authorities were in vain. In addition to Indians, there are Bangladeshis among the crew members. Iran has explicitly stated the responsibilities of the countries concerned to provide assistance in terms of international law.
The Iranian position was articulated by its Ambassador to Sri Lanka, Dr.Alireza Delkhosh, recently. In a special statement, Ambassador Delkhosh emphasised that in terms of the Convention on the Law of the Sea (Article 98) as well as SOLAS and SAR
Conventions, Sri Lanka couldn’t refrain from providing the needs of the Iranian vessels stranded in its EEZ.
SLMC leader Rauff Hakeem lambasted the NPP government in Parliament for failing to provide assistance to the Iranian ships. The former Minister alleged that the government was simply carrying out dictates of the US. He strongly criticised the way Foreign Minister Vijitha Herath was handling the issue.
MP Namal Rajapaksa, who is in remand custody over the controversial Airbus deal, was further remanded until October 27 by the Colombo Magistrate’s Court yesterday (13).
Colombo Chief Magistrate Asanga S. Bodaragama made the order after considering submissions by officers of the Commission to Investigate Allegations of Bribery or Corruption and lawyers representing Rajapaksa.
Sri Lanka’s economy is expected to sustain its recovery over the next two years, although growth is projected to moderate amid mounting global uncertainties, according to the International Monetary Fund’s (IMF) latest World Economic Outlook.
In its World Economic Outlook 2026: Resilience Under Strain, Urgent Choices, the IMF projects Sri Lanka’s economy to expand by 4% in 2026, slowing to 3.7% in 2027, following estimated growth of 5% in 2025.
Inflation, meanwhile, is forecast to rise to 5.3% in 2026 and 5.4% in 2027, reversing the average deflation rate of 0.5% recorded in 2025.
Unemployment is expected to remain steady at 3.9% throughout the forecast period.
The projections come amid growing pressure on the global economy from the ongoing conflict in the Middle East, elevated energy prices, geopolitical tensions and trade disruptions.
Sri Lanka’s external position is also expected to weaken, with the current account balance projected to shift from a surplus of 1.6% of gross domestic product (GDP) in 2025 to deficits of 0.5% in 2026 and 0.3% in 2027.
The IMF’s outlook points to continued economic expansion in Sri Lanka, but with slower growth, rising inflation and a narrowing external surplus giving way to current account deficits over the forecast period.
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