Sri Lanka’s economic recovery has defied expectations, according to the World Bank, which has stated that the island’s fiscal adjustments facilitated one of the most remarkable economic comebacks in history.
The island, which has suffered its worst currency crisis since its formation in 1945, has injected life into its failing economy through systemic reforms designed to avoid the fiscal mismanagement of the past.
Sri Lanka’s comeback
According to the organisation’s diagnostic report, titled ‘Sri Lanka Public Finance Review: Towards a Balanced Fiscal Adjustment’, the World Bank stated that the island stabilisation drive was among the best in 330 similar efforts in 123 countries worldwide since 1980.
The report claimed that the island’s revenues could go up by 2 percent in 2029, with Sri Lanka’s economy positioned to grow its gross domestic product (GDP) by eight percent in the next three years.
For the World Bank, the island is on pace to provide improved access to government services to the public within the constraints of the state budget, highlighting a developing fiscal situation where the country can maximise its finances while minimising waste.
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Spend smarter, not less
Shifting to direct levies like minimum corporate income tax while reforming the island’s tax administration system is key to maintaining this trajectory, said the World Bank, adding that spending smarter, not less, should be the government’s long-term strategy.
“While fiscal measures helped restore stability, they also put pressure on households through higher indirect taxes and reduced real public-sector wages, and slowed growth due to lower public investment,” said the report, according to Daily FT.
“The next phase of fiscal calibration should prioritise raising revenues in ways that support growth and fairness, and improve the quality of government spending,” it added.
Additionally, the report advised the island to recalibrate its capital investments and refocus them to address infrastructure gaps.
For its part, the government is also urged to better determine the essential services through stronger project selection, management and maintenance.
A call for better social protection
The report also recommended that the country should widen its social safety net to the public through targeted assistance to vulnerable communities.
“Now that Sri Lanka has largely stabilised its economy, the challenge is to get better results from every rupee collected and spent,” said World Bank division director for Maldives, Nepal, and Sri Lanka David Sislen.
Sislen said the island should ensure that public spending is efficient and fair to close the loopholes in the government services sector.
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Shameeka Voyiya 
Newsjustnews writers 
Ren Azrack Escosio