According to Moody’s Investors Service, Sri Lanka’s (B1 negative) programme with the International Monetary Fund (IMF) has helped stabilize the balance of payments 

Further it has establish an ambitious roadmap to fiscal consolidation and structural reform.

Though, sustained implementation of reforms will be challenging. Moody’s says the 2017 budget confirms the government’s strong commitment to fiscal consolidation with a number of measures identified to improve tax revenues.

The Investor Service also said if economic activity disappoints or tax-raising measures yield lower outcomes than currently budgeted, the fiscal targets may slip.

Moody’s added after the VAT rate increase in 2016, the 2017 budget focuses in particular on raising corporate and individual income tax revenues through a simplification of the tax structure.

However, if effective, significant fiscal tightening and higher inflation in response to the VAT rate hike will dampen growth.

Moody’s analysis is contained in its just-released report titled “Government of Sri Lanka: Effective Revenue Reforms Remain Key to Credit Outlook”.

The Investor Service also said if economic activity disappoints or tax-raising measures yield lower outcomes than currently budgeted, the fiscal targets may slip.