Sri Lanka’s budget deficit in 2023 is recorded at 10.2% of GDP, driven mostly by interest expenses. The economy contracted 8.7% in real terms in 2022 due to stop-go policies, stimulus, and output gap targeting. Revenues picked up slightly amid a steep currency collapse and high inflation. Under an IMF deal, monetary law will be changed to legalize output gap targeting. Spending restraint was imposed in 2022 after state expansion, and current spending was brought down to 14.6% of GDP. Interest payments comprised 7.2% of current spending. Critics say flexible inflation targeting policies and currency depreciation lead to high nominal interest rates, regressive inflation taxes on the poor, and poor management of energy utilities. The IMF program primarily seeks revenue-based fiscal consolidation, but there are no plans for a consistent single anchor regime.