While Sri Lanka has achieved internationally recognised improvements in government revenue and fiscal indicators following its economic crisis, a leading economist argues these gains have not translated into comparable improvements in employment, poverty reduction, or household welfare.
Sri Lanka's post-crisis fiscal recovery has been widely acknowledged for strengthening government finances, but the benefits have not reached ordinary households struggling with employment losses and rising poverty, according to Verité Research Lead Economist Raj Prabu Rajakulendran. Speaking at a tax policy forum, he noted that while the country's revenue-to-GDP ratio improved from around 8% before the crisis to approximately 16%, placing it among top performers in fiscal recovery, these macroeconomic gains obscured a more troubling picture for citizens' livelihoods. Employment has fallen to its lowest level in two decades, and poverty estimates suggest levels around 30%, compared to roughly 11% before the crisis, though official updated figures remain unpublished.
Rajakulendran argued that economic growth figures themselves provide a misleading recovery narrative. He explained that projected growth through 2027 merely represents the recovery of output lost during successive economic shocks rather than genuine expansion beyond 2018 pre-crisis levels. He questioned whether GDP growth alone should determine recovery success, noting that economies can expand while inequality widens and households continue facing cost-of-living pressures. The economist called for policymakers to prioritise employment, wages, poverty and inequality alongside conventional macroeconomic indicators when assessing recovery outcomes.
Regarding taxation sustainability, Rajakulendran identified a collection rather than rate problem. Although Sri Lanka's corporate income tax rate of 30% ranks among the region's highest, collection remains weak compared to peer nations at similar development stages. He recommended shifting from higher tax rates toward improved compliance, broader taxpayer bases, and greater reliance on direct taxation. The economist highlighted that indirect taxes now account for approximately half of recent revenue increases, disproportionately burdening lower-income households who spend larger income portions on consumption.
On debt sustainability, Rajakulendran emphasised that interest servicing costs matter more than debt stock size. He argued that Sri Lanka's debt restructuring largely deferred rather than materially reduced future obligations, contrasting this with countries like Ghana and Mongolia that restructured earlier and avoided deeper economic contractions. He noted that Japan and Singapore maintain debt ratios around 200% of GDP while retaining strong credit ratings because they service debt at low interest rates. For Sri Lanka, he concluded, true recovery success should ultimately be measured by improvements in living standards and human welfare rather than fiscal indicators alone.
