2026 a growth Budget for Sri Lanka?

AFTER a remarkable recovery from a very deep crisis in 2022, Sri Lanka's recent Budget consolidates economic stablisation and introduces a few markers for further growth (e.g. on trade, digitalisation and the Port City), but more needs to be done to embed a growth strategy and transform its economy to avoid further IMF austerity programs.

- By Dirk Willem te Velde and Ganeshan Wignaraja

President and Finance Minister Anura Kumara Dissanayake

It is fair to say that Sri Lanka has defied economic expectations in the 2020s. Following its historic preemptive sovereign default in April 2022, Sri Lanka experienced its worst economic crisis since independence. Then the country fell into a vicious cycle of a deep contraction, spiralling inflation, rising income poverty and public protests over shortages and rising prices.

But, compared with many in the developing world, the country's debt induced contraction and inflation spiral was remarkably short-lived. Fast forwarding to November 2025, the economy grew by 4.8% in the first half of 2025, inflation down to about 2% but poverty remains stubbornly high. This is due to a combination of Indian emergency aid, a tough 17th $ 2.9 billion IMF program, and decisive policies by the Government of Sri Lanka (including the Central Bank of Sri Lanka).

A new Government led by left leaning President Anura Kumara Dissanayake since late 2024 deserves credit for adopting a pragmatic approach and continuing with the IMF program. This is a major departure for his left-wing political alliance, the National Peoples Power (NPP), which campaigned to renegotiate terms under the IMF program to include more welfare measures. With Sri Lanka midway through its current IMF program, the pressing public policy question is this time going to be different and might Sri Lanka avoid having to seek a further 18th IMF program in the future by transforming its economy?