Budget 2026 maps Rs.5.3tn income, Rs.7.1tn outlay

Budget 2026 forecasts total revenue and grants of Rs.5,300 billion, reflecting the government’s intent to strengthen fiscal consolidation while expanding public investment to spur growth. 

Total expenditure for the year is estimated at Rs.7,057 billion, with recurrent expenditure accounting for Rs.5,688 billion and public investment at Rs.1,380 billion.

Revenue and grants are projected at 15.4 percent of GDP, while total expenditure stands at 20.5 percent, resulting in a budget deficit of 5.1 percent of GDP. The government expects to post a primary surplus of 2.5 percent, with the revenue deficit narrowing to 1.2 percent, signalling a measured effort to maintain fiscal discipline amid the ongoing debt restructuring process.

Tax revenue, the dominant source of income, is projected at Rs.4,910 billion, led by the taxes on goods and services amounting to Rs.3,056 billion, income tax of Rs.1,210 billion and external trade taxes totalling Rs.644 billion. Non-tax revenue is estimated at Rs.360 billion, while grants are expected to bring in Rs.30 billion.

Unveiling the budget, President Anura Kumara Dissanayake reiterated his administration’s determination to meet fiscal and revenue targets agreed upon under the debt restructuring framework, dismissing speculation about a possible default in 2028.

“Certain groups are spreading an unfounded opinion that an inability to pay foreign debt may arise in 2028. But what is the real situation? We have the capacity to pay this. Therefore, we believe that the people of this country will not accept such false propaganda,” he said, noting that the government had already made foreign debt service payments amounting to US $ 2.4 billion this year.

Dissanayake highlighted that Sri Lanka’s foreign debt service in 2028 is expected to rise moderately to US $ 3.26 billion, only US $ 824 million higher than the 2025 levels. He added that debt servicing capacity would be further strengthened by maintaining revenue targets above 15.3 percent of GDP in 2026 and 15.4 percent in 2027.

“If these targets are met, the creditors have agreed to provide a 0.75 percent reduction in the annual interest rate payable from 2028 to 2035. Accordingly, the government will receive a debt servicing benefit of US $ 7.9 million per year,” Dissanayake said, underscoring that the government is committed to achieving these benchmarks.

The 2026 fiscal roadmap also reiterates the government’s pledge to create a more equitable tax structure by adjusting the direct-to-indirect tax ratio from 25:75 to 40:60, aligning with its broader reform agenda.

To support this transition, the Inland Revenue Department is being modernised through the rollout of RAMIS 3.0, expected to improve tax compliance and expand the tax base. Over the long term, the government aims to lift revenue to 20 percent of GDP, consolidating its fiscal footing while paving the way for debt sustainability and growth-led recovery.