Sri Lanka’s 2026 Budget is expected to build on strong fiscal consolidation achieved this year, with the Government signalling that no new taxes will be introduced next year despite ambitious revenue targets. President Anura Kumara Dissanayake, during his recent official visit to Japan, reaffirmed that the 2026 fiscal plan will rely on improved revenue collection, better management of State enterprises, and efficiency-driven spending rather than new levies on the public.
According to the latest data from the Central Bank of Sri Lanka (CBSL), the Government’s fiscal position has significantly strengthened, with the overall budget deficit shrinking by nearly 55% in the first eight months of 2025 to Rs. 411 billion, compared to Rs. 911 billion during the same period last year. This improvement reflects the administration’s efforts to enhance tax compliance, rationalise expenditure, and strengthen the performance of State institutions under the IMF-supported economic reform framework.
Tax revenue grew 31% year-on-year, reaching Rs. 3.07 trillion by end-August 2025, up from Rs. 2.35 trillion in the same period of 2024. Non-tax revenue also recorded a modest rise of 8%, amounting to Rs. 226.2 billion, while foreign grants declined by 17% to Rs. 6.7 billion. The CBSL attributed the surge in revenue primarily to improved collection efficiency by the Inland Revenue Department, customs reforms, and higher VAT receipts from expanding domestic consumption.
Meanwhile, recurrent expenditure grew 11% to Rs. 3.4 trillion, a slower pace than revenue growth, underscoring improved fiscal discipline. Capital expenditure and lending excluding repayments dropped 24%, reflecting tighter project prioritisation and a focus on essential infrastructure investments. Notably, the primary balance recorded a surplus of Rs. 1.27 trillion, a near doubling from Rs. 648.7 billion last year, signalling progress toward fiscal stability and debt sustainability.
Despite this improvement, public debt remains high. The CBSL reported that as of mid-2025, total Government debt stood at Rs. 29.6 trillion, up 3% from Rs. 28.7 trillion a year earlier. Foreign debt grew 3.8% to Rs. 10.8 trillion, while domestic borrowings rose 2.7% to Rs. 18.8 trillion. Treasury bill issuance declined 3.4% to Rs. 3.9 trillion, while Treasury Bonds expanded 6% to Rs. 14.9 trillion, indicating a shift toward longer-term financing.
The upcoming 2026 Appropriation Bill, to be tabled in Parliament in October, is expected to outline a projected revenue target exceeding Rs. 5.2 trillion, driven primarily by stronger tax administration, digitalised collection systems, and higher earnings from State-Owned Enterprises (SOEs). The Government aims to sustain the fiscal deficit below 4% of GDP, aligning with IMF targets while protecting social spending and public investment.
Officials said revenue growth in 2026 would be achieved by broadening the tax base, reducing evasion, and enhancing efficiency, rather than imposing new burdens on citizens. The Budget is expected to prioritise public sector reforms, infrastructure development, and innovation-led growth, marking a policy shift toward stability-driven expansion.
If fiscal trends continue, the 2026 Budget could represent a milestone in Sri Lanka’s post-crisis recovery combining fiscal restraint with social equity and economic renewal, all without new taxes on the public.
