2026 Budget: A balancing act between IMF program and relief

SRI Lanka's 2026 Budget marks an important point in the country’s long and difficult path to economic recovery that commenced in 2022. It seeks to strike a delicate balance—maintaining fiscal discipline under the International Monetary Fund (IMF) program while reigniting growth and restoring confidence. However, it offers limited proposals for easing the burden on citizens and businesses, particularly from both direct and indirect taxes.

- By Dinesh Weerakkody

At its heart, the Budget aims to shift Sri Lanka's focus from short-term crisis management to sustainable rebuilding. The Government's target of a primary surplus of around 2.3% of GDP, in line with IMF requirements, reflects a commitment to fiscal discipline and debt sustainability. The IMF has also stressed the need to raise Government revenue to at least 15% of GDP to ensure fiscal space for essential services and development. Yet, as experience shows, austerity alone cannot deliver growth; fiscal consolidation must be coupled with reforms that stimulate investment, create jobs, increase incomes, and boost productivity.

Public investment

A central feature of the 2026 Budget is its renewed focus on public investment, with nearly 4% of GDP allocated for capital expenditure.

This represents a pivot toward growth-oriented spending—particularly in infrastructure, manufacturing, and the digital economy. Funds have been set aside to revive stalled mega projects and settle domestic arrears, as outlined in the Budget proposal. If executed efficiently, such investments could crowd in private capital, create employment, and boost investor confidence. However, the country’s past issues with cost overruns and weak oversight highlight the critical importance of transparent governance and efficient implementation.

Revenue