IMF stresses need for stronger revenue measures in Budget 2026

• Calls for stronger revenue mobilisation and more prudent spending, in line with programme commitments under EFF
• Stresses Budget 2026 should be underpinned by strong revenue measures and appropriate spending allocations, consistent with programme parameters
• Acknowledges tax revenue performance has improved in recent months, helped by stronger collections from VAT and levies on imported motor vehicles
• Calls for reforms to strengthen tax exemption frameworks, boost tax compliance, broaden tax base and enhance public financial management

The International Monetary Fund (IMF) yesterday stressed the importance of firm fiscal discipline, as Sri Lanka prepares its 2026 national budget. 

It called for stronger revenue mobilisation and more prudent spending, in line with the programme commitments under the Extended Fund Facility (EFF).

In a statement issued at the conclusion of a five-day staff mission to Colombo, the IMF said sustained efforts to raise fiscal revenues would be essential to maintain macroeconomic stability and keep the reform trajectory on course.

“To continue meeting the medium-term primary balance objective of 2.3 percent of GDP—a key requirement for restoring Sri Lanka’s debt sustainability—the 2026 budget should be underpinned by strong revenue measures and appropriate spending allocations, consistent with the programme parameters,” the IMF said.

The IMF acknowledged tax revenue performance has improved in recent months, helped by stronger collections from Value Added Tax (VAT) and levies on imported motor vehicles but noted that further policy and administrative action is needed to reinforce fiscal consolidation.

It called for reforms to strengthen the tax exemption frameworks, boost tax compliance, broaden the tax base and enhance public financial management, including to avoid the reemergence of expenditure arrears.

The emphasis on tightening the tax regime comes as the government edges closer to completing the debt restructuring agreements and eyes the fifth review of the US $ 3 billion EFF programme.

According to analysts, the IMF’s renewed focus on revenue signals limited tolerance for slippages, particularly as risks mount from global trade uncertainty and political volatility.

The IMF also stressed the need for legislative consistency, as the government prepares to table a number of reform bills linked to fiscal governance.

“The upcoming bills on public-private partnerships, state-owned enterprises, public procurement and public asset management should be consistent with the Public Financial Management Act and best practices,” it said. Energy pricing, another area closely watched under the programme, must remain on a cost-recovery basis, to minimise fiscal risks and support financial sustainability of the energy utilities.

With inflation subdued and reserves building, fiscal reform is now the focal point of the adjustment programme. But policy traction will depend heavily on political commitment and the government’s ability to push legislation through a fragmented Parliament, it said.

The IMF mission, led by Evan Papageorgiou, met with President and Finance Minister Anura Kumara Dissanayake, senior Central Bank officials and private sector, media and civil society representatives during its visit.