Sri Lanka aims to overhaul its crisis-hit economy in preparation for resuming debt repayments from 2028, President Anura Kumara Dissanayake announced while unveiling the 2025 budget. The budget, seen as a key step towards sustainable, long-term growth, aligns with the conditions set under a $2.9 billion IMF bailout.
Dissanayake, who also serves as Finance Minister, was elected last year to steer the South Asian island nation out of its worst financial crisis in over seven decades. The 2022 economic collapse led to Sri Lanka’s first-ever international debt default and severe shortages of essentials, triggering mass protests that forced the resignation of then-President Gotabaya Rajapaksa.
In a three-hour speech to Parliament, Dissanayake pledged wide-ranging reforms, projecting 5% economic growth in 2025, with a similar outlook in the medium term. He emphasised maintaining low inflation and stable exchange rates as part of the government’s economic roadmap.
Staying on Track with IMF Commitments
The president reiterated Sri Lanka’s commitment to achieving a primary account surplus of 2.3% of GDP in 2025, in line with IMF requirements. He also assured that Colombo will honour all debt obligations, while working towards reducing poverty levels.
“Never has Sri Lanka had a chance like this to catch up with the modern world,” Dissanayake said. “Most countries go through what is known as a ‘lost decade’ following a sovereign default. However, we have achieved stability to a certain extent.”
Since securing the $2.9 billion IMF bailout in March 2023, Sri Lanka has recovered faster than expected. Inflation has eased, the central bank has cut interest rates to pre-crisis levels, and debt restructuring was completed in December 2024.
The Colombo Stock Exchange (CSE) reacted positively, with the All Share Index (.CSE) rising 1.43%. The country’s bonds also climbed by as much as 0.5 cents, pushing the newly restructured debt to its highest level since being relaunched at the end of last year.
Focus on Economic Sovereignty and Trade Expansion
Meeting IMF targets is critical for Sri Lanka to improve its credit rating and regain access to international financial markets by 2028. The IMF has set an ambitious fiscal deficit target of 5.2% of GDP and revenue increase to 15.1% of GDP in 2025, essential for securing the next $333 million bailout tranche.
While acknowledging the IMF’s role in stabilising the economy, Dissanayake emphasised the need for economic sovereignty in shaping Sri Lanka’s long-term agenda.
“We recognise the role played by the IMF … in stabilising the economy, but to design our economic agenda, achieving economic sovereignty is necessary,” he said.
The government plans to expand free trade agreements to boost exports and prioritise investment in key industries such as clothing and manufacturing. Additionally, a new bankruptcy law and customs legislation will be introduced to support trade and business growth.
Dissanayake announced that 4% of GDP would be allocated for capital investment to support local businesses. Sri Lanka’s foreign reserves have now reached $6 billion, covering four months of imports, a significant recovery from $1.9 billion at the end of 2022, according to central bank data.
With the 2025 budget, Sri Lanka takes another step towards stabilisation and long-term economic growth, positioning itself to regain financial independence and resume debt repayments by 2028.
Source: Reuters
Read the complete speech :
https://www.treasury.gov.lk/api/file/fd89eb07-4b9d-4f86-97d3-bdfed2025a0b
