Spend smarter, World Bank   cautions Sri lanka

• Says challenge is to get better results from every rupee collected and spent
• Emphasizes better utilization of existing budgets rather than expanding or slashing them
• Recommends a shift toward direct taxation, including introducing a minimum corporate income tax, alongside digitizing tax processes to simplify compliance

By Mirror Business Desk  

Sri Lanka must focus on smarter spending and fairer revenue collection to sustain its economic gains, the World Bank cautioned in a report published yesterday, as the country seeks to consolidate one of the sharpest fiscal adjustments in its history.  

The report, ‘Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment’, noted that over the past three years, fiscal consolidation equivalent to nearly 8 percent of GDP restored macroeconomic stability.  

However, the rapid adjustment has strained households and slowed growth, underscoring the need for the next phase of reforms to deliver more efficient and equitable results.  

“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,” said World Bank Division Director for Maldives, Nepal and Sri Lanka David Sislen.  

The review recommended a shift toward direct taxation, including introducing a minimum corporate income tax, alongside digitizing tax processes to simplify compliance and improve transparency. According to analysts such measures could increase government revenue by up to 2 percent of GDP by 2029 without undermining growth or equity. On spending, the World Bank emphasized better utilization of existing budgets rather than expanding or slashing them. Key measures include modernizing payroll systems, improving public sector wage management, and safeguarding essential frontline services.  

Infrastructure and capital projects also need strategic focus. The report called for prioritizing investments, accelerating ongoing projects, and strengthening project selection, management, and maintenance to maximize economic impact. Social protection programmes, the review added, should shift from universal subsidies to targeted support for the most vulnerable. Expanding the social registry would help ensure aid reaches those who need it most while maintaining fiscal discipline.  

The World Bank went on to assert that these reforms could strengthen long-term fiscal resilience, improve accountability, and deliver better outcomes for citizens while supporting inclusive growth.