Sri Lanka recorded a negative foreign financing of Rs 27.9 billion for the four months to April 2025, compared to Rs7.4 billion during the same period last year. The figures reflect continued net repayments of foreign debt amid limited new inflows and multilateral repayments following monetary stabilization, according to Echelon’s sister concern, EconomyNext, which reports sourcing official data.
Domestic borrowings amounting to Rs 289.5 billion covered the entire budget deficit of Rs 261.6 billion and included repayments of foreign debt, with no material new bilateral financing deals concluded in recent months. The country has experienced negative foreign financing for several months since stabilizing its currency and inflation trajectory. Sri Lanka is expected to record a $3 billion net outflow in foreign budget financing by year-end, partly due to debt restructuring.
Total revenues rose 20% year-on-year to Rs1,453 billion, supported by a 21% increase in tax revenues to Rs1,349 billion and a 6% rise in non-tax revenues to Rs 104.2 billion. The tax hikes introduced in the aftermath of the 2022 currency crisis continue to boost government income. Current expenditure increased 13% to Rs 1,603 billion during the same period. Interest payments accounted for Rs 794 billion, a 9.4% increase, while non-interest current spending rose 17% to Rs 809 billion, driven in part by higher public sector wages and pensions from April 2025.
The burden of public sector salaries, including tens of thousands of state-employed graduates and pensioners, remains a significant component of recurrent expenditure. These payments, primarily funded by general taxation, continue to generate pressure for increased revenue collection. The economic collapse in 2022 led to a depreciation of the currency from Rs184 to Rs300 per US dollar, eroding real incomes across both the public and private sectors. Subsequently, the state imposed higher income taxes as part of a revenue-generation strategy aligned with IMF-backed reforms.
While tax revenues increased, spending on subsidies has persisted. Rice import controls have kept local prices over 50% above regional levels, sustaining higher costs for consumers and contributing to food insecurity. The current account deficit of the budget narrowed to Rs 150 billion by April 2025, compared to Rs203 billion the year before.
Capital expenditure increased by 20% to Rs112.9 billion, although the pace of project execution remains slow. Concerns have emerged about delays in public procurement. Reports suggest that officials are hesitant to approve tenders, which may be stalling capital projects. Nonetheless, the overall budget deficit narrowed from Rs 361.1 billion to Rs 261.6 billion.