Govt. delivers progressive growth and reform oriented budget

By Dilina Kulathunga

After many decades, the government pulled off what was unthinkable for many by presenting a budget which ticks almost all boxes in its fiscal parameters while laying the foundation for a fully fledged digital economy powered by artificial intelligence and led by the private sector.   

It is both strong in spending which is sine-qua-non in adding more steam to the economy and equally robust in revenue, without causing pain on any sector or a group of people.   
In fact, the budget scored 10/10 in achieving predictability and continuity in government policy in economic management which is going to be welcomed by the private sector.   
Some have unsettled though on bringing down the annual revenue thresholds on the Value Added Tax and Social Security Contribution Levy.   

But if one is an advocate for widening the tax net, one is unable to find fault with this revenue measure although this is going to be somewhat against the government’s desire to raise more money from direct taxes and less from indirect.   

One area to watch though is how much of revenue is expected from vehicle imports as vehicle imports may not be as high as what was seen in 2025 and more so because of the lowered Loan-To-Value ratios by the banks.   

Although that being a monetary policy decision, it is a positive step to prevent much crucial foreign exchange being drained out of the country as has already seen so far this year with nearly US $ 2.0 billion worth of Letters of Credit have been opened, according to the President.   

But slowing revenue from vehicles is going to be least of the problems for a government to achieve what they are set out to achieve fiscally due to over 5 percent or more growth (7 percent at best), aimed for the economy.   

If they can outperform their fiscal targets at 4.8 percent Gross Domestic Product growth, they can certainly do so again at over 5 percent growth projected for next year.   
Some sections have attempted to show that over 85 percent of revenue going into debt servicing as a confirmation of the depth of the debt crisis Sri Lanka is already in.   

However, Sri Lanka has always had high debt and now only it has been on a path to bring it down. This is why the government is cutting the deficit and thereby bringing the debt stock down. It is a process that takes some time.   

Even by paying over 85 percent of revenue for debt servicing, which in fact included the new debt that is going to be taken, Sri Lanka outperformed its fiscal targets in 2025.   
But was it due to what the government did in particular? Not entirely. The credit for the current macro stability and the growth must squarely go to President Wickremesinghe’s administration.   

Where this government receives credit is for continuing those policies.   

In fact, even though the government campaigned on a different set of policies, they soon realized the danger in pivoting away. They were duly advised after coming into power by those around the President to stick with the Wickremesinghe policy on the economy which is mostly the International Monetary Fund’s at the broader level.   

In fact with the fiscal out-performance, the government is now in a position to reclaim some autonomy over the economic policy, which they appeared to have done in the budget.   
Moreover, the State owned Enterprise reforms announced in the budget could not be rejected regardless of your political leanings because those were what everybody called for, for many decades.   

Government has the mandate, popularity and most of all the political will to execute them at last. Kudos to them for that.   

Further, the government’s investment focus cannot be emphasized more in the budget where they proposed amendments to key pieces of legislation and establishing Board of Investment as the single investment window to fast track approvals.   

Business focus is central in  Budget 2026 which proposed Public Private Partnerships with the Bill to be presented in Parliament early next year while small business support via access to funding and trade facilitation is huge.   

This is besides the tax concessions for selected sectors such as export oriented manufacturers.   

By this, the government makes a true attempt to get the private sector to lead the economy while the government playing the policy maker and facilitator’s role, which it ought to be.   
Public investment is the highest it has ever been with nearly Rs. 1.4 trillion being allocated and that must add a flywheel to the current economic momentum.   

Anti-corruption movement, digitalization and the commitment for artificial intelligence, if rolled out, must cut cost and enhance productive capacity of the economy while enhancing the skill set of the working population.   

Overall, the budget 2026 turns out to be a real forward looking economic policy statement by the government which could unleash further economic potential in Sri Lanka in the absence of any exogenous event.