BUDGET 2026
THE ULTIMATE TEST
Shiran Fernando writes that execution must outpace budget promises
Budget 2026 delivered on predictability and offered policy continuity on the fiscal front with no major surprises in taxation or spending priorities. The government’s second budget since taking office a year ago took a broad-based multi-sectoral approach by balancing fiscal discipline with targeted social measures.
In many ways, it signalled a transition from crisis recovery to consolidation. Yet as always, implementation remains the ultimate test.
FISCAL STRENGTH Sri Lanka’s fiscal turnaround in only three years has been remarkable.
In 2022, revenue collapsed to around eight percent of GDP – among the lowest in Asia. By the end of 2025, the government expects revenue to be close to 16 percent of gross domestic product, which is the highest since 2007.
The primary surplus, projected at 2.3 percent of GDP, is now forecast to reach 3.8 percent in this year, surpassing targets under the IMF programme.
This overperformance reflects both the steep tax adjustments introduced since 2022 and one-off revenue effects from pent-up demand – particularly after import restrictions on vehicles and other consumer goods were lifted.
But the government rightly recognises that such buoyancy is temporary: the budget projections for 2026 have been revised downwards modestly, anticipating a slowdown in consumption and import related revenue.
Even so, the numbers remain above IMF forecasts, suggesting that fiscal stability is firmly entrenched.
DIGITALISATION Budget 2026 also underscored the government’s commitment to accelerating digital transformation, and positioning it as a key enabler of public sector efficiency and private sector competitiveness.
An e-procurement system is to be introduced shortly to digitise and streamline public procurement processes by enhancing transparency and accountability. By March next year, people will be able to submit their asset declarations digitally, marking another step in governance reform.
In parallel, the budget identified a potential US$ 15 billion growth opportunity in the digital economy that’s underpinned by expanding infrastructure and technology adoption.
The establishment of two new IT zones in Digana and Nuwara Eliya under the Board of Investment of Sri Lanka (BOI), along with the issuance of digital IDs in 2026, signals intent to build a connected and innovation driven economy.
Together, these initiatives have the potential to modernise service delivery, attract tech investments and expand digital inclusion across sectors.
REFORM MOMENTUM One of the budget’s more encouraging proposals is its alignment with the structural reform agenda that has reinforced Sri Lanka’s recovery.
It references progress on several long pending measures such as the execution of the National Tariff Policy, establishment of the Trade National Single Window (TNSW) and implementation of the PPP (public-private partnership) Framework.
Equally significant is the recognition of land management and investment access as binding constraints. The inclusion of the National Land Use Plan and establishment of a digital land registry are direct responses to longstanding private sector concerns.
If executed effectively, these measures could unlock investment bottlenecks that have slowed project approvals and land allocation for years.
CAPITAL AND SMEs A welcome development is the reduction of the investment threshold for enhanced capital allowances from US$ 3 million to 250,000 dollars. This change will allow more SMEs and mid-size investors to benefit from existing incentives by encouraging reinvestment and technology upgrading at a company level.
At the same time, the government has proposed a new residence visa scheme for foreign investors who meet certain thresholds in priority sectors – a pragmatic step to improve investor confidence and the ease of doing business.
However, what’s missing from the budget is a comprehensive investment incentive package linked to the proposed revisions in the Strategic Development Act. Such a framework could have clarified the future direction of investment policy and strengthened Sri Lanka’s competitiveness relative to its regional peers.
WORLD TRADE Amid global trade realignments, Sri Lanka stands at a strategic crossroads.
Supply chain diversification across Asia is accelerating, and countries in South and Southeast Asia are vying for investments due to geographical risk diversification. The budget could have articulated how Sri Lanka intends to capture this opportunity.
While the new tariff bands and trade facilitation commitments are positives, investors will look for clarity on the broader economic transformation agenda – including reforms to institutions such as the BOI under the Economic Transformation Act.
Faster movement on these institutional reforms will determine whether Sri Lanka remains merely stable or becomes genuinely competitive as a supply chain partner and export platform.
DELIVERY IS KEY For 2026, the message is clear: execution must outpace promises. In parallel, growth must be inclusive. As the economy shifts from consumption to investment led growth, targeted social and poverty alleviation programmes will be needed to protect vulnerable communities, and ensure a broad-based recovery.
If 2025 was the year of enhancing economic stability, 2026 should be the year of executing reforms – swiftly, consistently and with accountability. That’s the only path to converting fiscal strength into sustained, inclusive and transformative growth.
