COPF refutes economic growth claims in the budget

By Yohan Perera and Ajith Siriwardana  

The Committee on Public Finance (COPF) which has gone through the budget proposals as per the Parliamentary procedure has said in its report which was submitted to the House that Sri Lanka’s economic growth remains vulnerable to global trade uncertainties, geopolitical risks and climate related disruptions.  

Inflation is expected to return to a 5% target by Q3 2025 after several quarters of deflation. Further downward pressure on prices is possible from suppressed demand while wage pressures and adverse weather conditions could put upward pressure on prices. Exports are projected to rise, supported by external demand and easing supply constraints, but risks such as global economic slowdowns and currency appreciation could impact competitiveness. The relaxation of import restrictions is expected to boost tax revenue but may also widen the trade deficit and exert pressure on foreign exchange reserves,” the report submitted by COPF Chairman Harsha de Silva said.   

This observation by COPF comes despite the NPP government’s maiden budget which claims that the economy is projected to grow by 3-5%, driven by accommodative monetary policy and greater fiscal space providing room for lower interest rates and investments. Continuing growth in tourism and the expected pick up in large capital infrastructure projects could also boost growth.   

“The external trade are projected to increase by 36%, mainly from import duties. Compliance with the IMF’s Extended Fund Facility (EFF) targets hinges on achieving a tax-to-GDP ratio of 13.9%, but any delays or setbacks in vehicle importation or administrative inefficiencies could jeopardize this goal. The lack of revenue diversification, potential overestimations in non-corporate income tax, and uncertainties in VAT compliance and digital tax projection represent risks to the feasibility of the 2025 revenue estimates,” the report added.