The Hon. (Dr.) Anil Jayantha - Minister of Labour and Deputy Minister of Economic Development

¶ 01 Thank you, Hon. Presiding Member. The Fiscal Policy Statement presented today is, in fact, required under provisions of the State Finance Management Act, No. 44 of 2024, to be presented by 30th June. Accordingly, it has been presented. Its content—policy, revenue management, revenue mobilization, expenditure management, deficit reduction, and risk control—lays the foundation we have consistently emphasized since we took charge: stabilization.

¶ 02 Our political history shows that terms like fiscal discipline, transparency, good governance, accountability, and corruption-free administration were often reduced to mere words, and even mocked. Some governments were labelled “good governance” while engaging in corrupt practices. It is in such a context that we accepted this challenge.

¶ 03 No external party forced us by order; our own responsibility is to ensure proper fiscal discipline within stabilization. Every rupee collected from the public as taxes must be managed with accountability. While a government needs a framework to operate, we had designed our programme even before taking office—centered on transparency, anti-corruption, good governance, public accountability, and efficiency.

¶ 04 Opposition groups present various arguments, but during their tenures they led the country into crisis—evident in the data post-2010 and especially after 2015: falling reserves, slowing growth, and rising debt burdens. Misuse of public funds without accountability pushed us into danger. They could not recover on their own, leading to the IMF programme during bankruptcy. Within that programme, with reforms and regulations, we advanced to some extent. When we took office, we managed that programme correctly within a stabilization framework as a party that follows disciplined and rules-based fiscal conduct.

¶ 05 For many in the Opposition, this reality is hard to accept. They know that after stabilizing politics under the National People’s Power, we are gradually raising a long-devastated economy, aiming to make the country prosperous and elevate it internationally. For that, international trade and investment are key. We are building that environment. Unable to confront this politically, some try to create fear and uncertainty by spreading distortions rather than debating the core contents of the Statement.

¶ 06 One such issue is debt. They say debt is rising uncontrollably, unpayable, with no plan. But we have presented the plan, strategy, and numbers clearly. On page 5, Table 1, we set out the inputs and targets based on a baseline scenario and macro assumptions. The key metric is the primary balance: government expenditure excluding interest—recurrent plus capital. We target a primary surplus of 2.2 percent of GDP in 2022, then 2.3 percent, and maintain 2.4 percent by 2029–2030. Stabilizing the primary surplus limits borrowing needs. That is where analysis and debate should focus.

¶ 07 For example, within these targets, in 2025, with a 2.3 percent primary surplus, the overall deficit is Rs. 2,200 billion. Debt service (principal) is Rs. 1,600 billion, and Treasury bill/bond rollovers about Rs. 200 billion. Thus, a borrowing ceiling of around Rs. 4,000 billion is set. We have shown how we will manage within that ceiling, source the financing, underpin it, and bring interest rates down. Rather than relying on costly foreign commercial borrowing as in the past, in 2025 we plan only Rs. 125 billion from foreign sources and Rs. 2,175 billion domestically—managing debt predominantly at home, and lowering the debt burden over time. Of the Rs. 1,600 billion in repayments, Rs. 680 billion are foreign.

¶ 08 Two Opposition Members presented incorrect debt data. One claimed debt would increase by “tens of thousands of billions” in 2025—confusing level with change. Central government debt was Rs. 28,695 billion in 2023, rose to Rs. 28,738 billion by end-2024, and Rs. 29,898 billion by end-May 2025. Some fluctuation comes from exchange rate movements between roughly Rs. 299–302 per USD; when we took office, many expected the dollar to surge to 320–400 or beyond, but we reduced that tension, managing the rate.

¶ 09 Another Member claimed we borrowed USD 7.3 billion—completely wrong. Such statements in Parliament should be based on facts.

¶ 10 On growth: emerging from crisis, we could have expected only modest growth, yet we surpassed projections due to rising investment and trade and renewed investor confidence after our government took office. In 2024, growth reached 5 percent, versus earlier IMF/World Bank projections around 3.5 percent, later revised above 4 percent. We ended 2024 at 5 percent. The Budget was passed in March this year; until then, we worked under a vote on account, so capital spending was constrained. Still, Q1 2025 growth was 4.8 percent, with industry, agriculture, and services contributing. Industry grew 9.7 percent—critical for laying the foundation for sustained growth via industrialization.

¶ 11 Some said there is no strategy. Strategy means the set of actions to reach objectives. For a nation, the strategy is for all its people, not a narrow profit motive. Our strategy covers: revenue policy—broadening the base, growing the economy, fair taxation, improving efficiency and compliance, and leveraging technology—and expenditure management. This is not about quick profits.

¶ 12 On US tariff measures: contrary to claims, Sri Lanka is the only Asian country currently in bilateral talks with the United States to secure duty relief within that engagement, and indications are positive.

¶ 13 On capital expenditure: the Opposition said less than 10 percent has been executed. Incorrect. Of the Rs. 1,315 billion allocated, we have spent Rs. 178.6 billion—13.5 percent—so far. We recognize the challenge and will accelerate execution to maximize capital spending.

¶ 14 We are emerging from crisis, and even historically, capital budgets were not executed at 100 percent—last year was about 65.4 percent. Relative to those conditions, we will advance better.

¶ 15 We must also assess how far stabilization has progressed. Revenue stabilization is strong. As of 26 June, Inland Revenue, Excise, and Customs have exceeded their monthly targets. Reducing volatility is vital in fiscal policy; we have not only reduced it but surpassed targets month by month compared to last year.

¶ 16 Typically, by end-June in a normal year, Inland Revenue collects about 40 percent of expected annual revenue in the first six months, with the remaining 60 percent in the second half. This year, by 26 June, we are near 47 percent—close to 50 percent. That is a very good trend. We thank all officials involved and note the importance of government support, especially through technology and digitalization.

¶ 17 On that note, an Opposition Member also urged e-invoicing. We have already proposed it. With VAT at 18 percent, as the economy expands, the VAT base also expands. We cannot abruptly cut rates now; as we stabilize, we will reduce taxes. To reduce them sustainably, VAT calculation, collection, and remittance must be digitized. We will introduce e-invoicing first to selected high-value, registered sectors, with international technical support. Integrating point-of-sale with e-invoicing will transmit transactions to Inland Revenue in real time. We will begin with exporters as a first step. There are also issues regarding refunds and deemed VAT; to enhance transparency and expedite refunds, e-invoicing is essential.

¶ 18 We have set up a special Revenue Task Force at the Presidential Secretariat, bringing together all revenue agencies under an Additional Secretary to drive administration, reforms, and modernization.

¶ 19 In this Statement, two main parts receive focus: the core fiscal framework—revenue mobilization, expenditure management, and debt management—and risk management. Under Section 11(5)(2) of the State Finance Management Act, fiscal targets and policies are set out (Table 1). Three targets matter most: revenue reaching above 15 percent of GDP by 2030; expenditure targets; and the primary surplus that determines the deficit outcome. Revenue rose from 7.8 percent of GDP in 2021 to over 13 percent in 2024, with targets of 15.1 percent in 2025 and 15.2 percent in 2026. With primary expenditure targeted at 12.9 percent in 2026, the difference yields a 2.3 percent primary surplus. If we can raise revenue beyond 20 percent of GDP over time, we can achieve faster growth. Our plan is to move from 7.8 percent towards and stabilize at 15 percent first, with the necessary measures in place, alongside proper expenditure management.

¶ 20 Under Section 5(b), we present a proposed timeframe for reducing public debt, with a complementary report on borrowing. Lower borrowing needs follow from sustaining the primary surplus—hence the 2.4 percent target by 2030. As interest costs fall, fiscal space improves and the deficit narrows, reducing borrowing.

¶ 21 We are within a programme that set a medium-term debt anchor of 95 percent of GDP by 2032. We inherited a debt ratio of 128 percent—unsustainable for a country like ours—and have reduced it to around 96 percent, making the 95 percent anchor feasible. The IMF’s latest projections suggest we could reach 90 percent by 2032, and we plan for 60 percent by 2040. Therefore, fearmongering about debt is baseless. We will proceed methodically—curbing unnecessary spending, eliminating waste, fraud, and corruption, prioritizing essential infrastructure, and targeting social transfers to protect vulnerable groups. We have allocated significant funds for these targeted benefits and have already exceeded our May 2025 targets—something we could not achieve in 2024.

¶ 22 Finally, on risk management: we outline the framework and key risk factors—macro variables, natural disasters, state-owned enterprises, and PPPs—and how we will respond under the National People’s Power government. This is the first time in our history a comprehensive Fiscal Policy Statement has been presented. It lays a stable foundation for investment as we move towards “a prosperous country – better lives.” Let us proceed by analyzing and implementing this strategy.

¶ 23 Thank you all.