Revenue is Rising, But Interest Payments Are Eating the Budget 

Government revenue has been all on a rollercoaster in the last years, going from 11.2% of GDP in 2018, to 7.8% after tax cuts. However, revenue was recovered to a certain extent, achieving 9.9% of GDP by 2023¹. This rebound, that rose from revenues from LKR 1,367,960 million in 2020 to LKR 3,048,822 million in 2023 was due to new tax measures, inflation, and efforts to broaden the base². 

Taxation is the government’s revenue backbone, as 92% of total revenue in 2024 came from taxes, with VAT alone contributing 32%, emerging as one of the largest contributors, and still contributing massively, following the rate hikes³.  

However, expenditure has always outpaced revenue. Even though revenue has nearly doubled since 2022, expenditure keeps increasing rapidly, jumping from LKR 4,472,556 million in 2022 to LKR 6,130,739 million in 2024².  

Interest payments alone went from LKR 1,565,190 million in 2022 to LKR 2,689,500 million in 2024, showing how debt servicing is eating into fiscal space⁴. The scale of the imbalance is clear and striking. By 2023, government debt had climbed to 104% of GDP, while the overall budget deficit remained high at 8.3% of GDP, financed largely through borrowing⁴. 

Notes:

1. Tax revenue (% of GDP) – Sri Lanka | Data. (n.d.). Data.worldbank.org. https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?locations=LK
2. Ministry of Finance – Sri lanka. (2025). Treasury.gov.lk. https://www.treasury.gov.lk/web/budget-estimates/section/budget%20estimates%20-%202025
3. Value Added Tax (VAT). (2024). Ird.gov.lk. https://www.ird.gov.lk/en/Type%20of%20Taxes/SitePages/Value%20Added%20Tax%20(VAT).aspx 
4. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/aer/2024/en/21_Featured_Chart_08.pdf