Fiscal reforms can put pressure on household: World Bank says
View(s):A new World Bank report says that while fiscal measures helped restore stability in Sri Lanka, they also had put pressure on households through higher indirect taxes, reduced real public-sector wages and slowed growth due to lower public investment.
The next phase of fiscal calibration should prioritise raising revenues in ways that support growth and fairness, and improve the quality of government spending, the report titled
“Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment “, said.
It said that SriLanka has made remarkable strides in stabilising its economy, undertaking one of the largest fiscal adjustments in its history—equal to nearly 8 per cent of GDP over three years. The adjustment was also sharper and faster by international standards – when compared with more than 330 similar efforts in 123 countries worldwide since 1980. A report said while the country is now well-positioned to focus on making public finances work better for all Sri Lankans, it highlighted that Sri Lanka could increase revenue by up to 2 per cent of GDP by 2029 without undermining growth or equity. It also points out that better targeting and management of public spending can deliver improved outcomes within current budget limits.
The review recommends raising revenue more fairly and efficiently shifting toward direct taxes, such as a minimum corporate income tax, and digitising tax administration to make paying taxes easier and more transparent; spending smarter, not more or less. The report stresses that it is not feasible to further cut or increase overall spending, but the best gains will come from using existing funds more efficiently to get better results.
It said this includes improving public sector wage management by protecting essential frontline services, simplifying pay structures, and modernising systems through which public sector workers are paid; reprioritising capital investments to close infrastructure gaps, completing ongoing projects faster, and strengthening project selection, management and maintenance, and enhancing social protection by better targeting assistance, expanding the social registry, and moving from universal subsidies to more focused support for those who need it most.
Sri Lanka can design the next phase of its public finance reforms to build long-term fiscal resilience. Strengthening links between planning and budgeting, improving accountability, and focusing on measurable performance outcomes will help deliver better services, support inclusive growth, and protect the most vulnerable.
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