COLOMBO, Sept 9, 2025 (ePRESS) – Sri Lanka has carried out one of the largest fiscal adjustments in its history, equal to nearly 8 percent of GDP over three years, the World Bank said Tuesday.
A new review of the country’s public finances said the adjustment was sharper and faster than in most countries worldwide. It compared Sri Lanka’s measures with more than 330 fiscal efforts in 123 countries since 1980.
The World Bank report, Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment, said the country is now well placed to focus on improving how public money is used for the benefit of all citizens.
The review noted that while tough measures helped restore stability, they also placed pressure on households through higher indirect taxes, lower real wages in the public sector, and slower growth due to reduced public investment.
“The next phase of fiscal calibration should prioritize raising revenues in ways that support growth and fairness, and improve the quality of government spending,” the report said.
According to the World Bank, Sri Lanka could increase revenue by up to 2 percent of GDP by 2029 without hurting growth or equity. It added that better targeting and management of public spending could deliver stronger results even within the current budget.
“Now that Sri Lanka has largely stabilized its economy, the challenge is to get better results from every rupee collected and spent,” said David Sislen, World Bank Division Director for Maldives, Nepal and Sri Lanka. “This means modernizing tax administration, focusing on direct taxes, and ensuring public spending is efficient and fair—especially for the most vulnerable.”
The report said Sri Lanka’s next phase of reforms should focus on building long-term fiscal resilience, improving accountability, and linking planning and budgeting to measurable outcomes.
The Public Finance Review is conducted every five years in World Bank member countries and provides a full assessment of fiscal policy, revenues, and spending.
