Reflecting Government's commitment to fiscal consolidation, a substantial increase in government revenue was recorded in both nominal terms and as a percentage of GDP in 2023, compared to 2022.

Accordingly, in nominal terms government revenue recorded a year-on-year growth of 54.0 per cent, while in GDP terms revenue increased by 2.8 percentage points to 11.0 per cent of GDP in 2023.

Numerous tax reforms implemented in the second half of 2022 and in 2023 supported the expansion in revenue collection. The significant rise in tax revenue was mainly due to the increased collections from income taxes, VAT, excise duties, import duties, and Special Commodity Levy (SCL). The Social Security Contribution Levy (SSCL) that was introduced in October 2022 also contributed to this increase in government revenue.

The total expenditure and net lending increased both in nominal terms and as a percentage of GDP, mainly driven by the substantial escalation in domestic interest expenditure, despite the notable reduction in capital expenditure and net lending.

Accordingly, in nominal terms, government expenditure recorded a year-on-year growth of 19.8 per cent, while in GDP terms expenditure increased only by 0.8 percentage points in 2023.

The significant nominal rise in domestic interest expenditure was influenced by elevated domestic interest rates stemming from tight monetary conditions prevailed until June 2023 and high risk premia attached to government securities amidst uncertainties over DDO.

Source: Annual Economic Review 2023 | Central Bank of Sri Lanka