Sri Lanka Interim Debt Policy Overview

The severe economic downturn, weak Sri Lanka's revenues, rising health expenditure and energy needs led to a worsening of the fiscal situation While the decline in growth partly led to shrinking revenues, Sri Lanka had to increase spending to safeguard its population from a double pronged health and energy crisis Primary balance, revenues¹ and expenditures In LKRbn (Revenue and Expenditures, on left-hand axis) and in % of GDP (Primary balance) 1500 0.6% (500) (2500) (4500) 2018A (3.4%) (4.0%) (4.3%) (5.7%) Over 2020 and 2021, Sri Lanka faced increasing expenditure needs, resulting from the need to finance its vaccination program, provide assistance to low-income citizens impacted by lockdowns and the general provision of healthcare facilities and medical equipment In 2022, the rise in global energy prices has derailed the country's expected recovery and further deteriorated public finances, as the Government had to intervene to protect its citizens from sky-high energy and food prices 2019A Revenue and Grants (LKRbn) 2020A 2021A Expenditures (LKRbn) 2022P Primary balance (%GDP) ▸ Sri Lanka's primary deficit widened in 2020 on the back of the unprecedented COVID shock and the necessary rise in public health spending. Primary balance is expected to remain in negative territory this year as the Government is obliged to assist its population confront the scarcity of energy resources and food supplies Sources: Central Bank of Sri Lanka, IMF Notes: (1) Including grants, (2) 2022 expected primary balance figure is already reflective of policies committed (or already implemented) as part of the IMF-supported program

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