President and Finance Minister Anura Kumara Dissanayake presented the first Budget under the National People’s Power (NPP) Government for the 2025 financial year, emphasizing economic democratization despite tight fiscal conditions. Although previous commitments focused on reducing government spending, the Budget outlines an expenditure increase exceeding Rs. 7 trillion.
Dissanayake highlighted key priorities, including economic empowerment, equitable wealth distribution, and the protection of economic rights, ensuring transparency and accountability in public funds usage. The Government aims for a 5% economic growth rate in 2025 and plans to maintain above 5% real GDP growth in the medium term. Export earnings are projected to reach $19 billion, with a primary budget surplus of 2.3% of GDP.
Acknowledging the role of the IMF’s Extended Fund Facility Programme, the President stressed Sri Lanka’s goal of economic sovereignty. Ongoing debt restructuring has eased debt servicing costs, allowing resources to be redirected towards external reserve strengthening and attracting non-debt generating inflows, such as exports and foreign investments. The Government aims to stabilize finances and resume full debt servicing by 2028.
Despite declining inflation, high living costs and stagnant wages have reduced living standards. Dissanayake emphasized the need for salary increases, given the significant decline in real wages. To address this, the Government is extending the Aswesuma cash transfer program while refining beneficiary selection to improve efficiency.
Key Budget Figures:
Total revenue and grants: Rs. 4,990 billion
Tax revenue: Rs. 4,590 billion
Total expenditure: Rs. 7,190 billion
Primary surplus: Rs. 750 billion
Total financing requirement: Rs. 2,200 billion
Gross borrowing requirement: Rs. 4,000 billion
To boost investment and exports, the Government will amend the Economic Transformation Act and implement a National Export Development Plan (2025-2029). Support for small and medium enterprises will help them expand into global markets. Tariff policy revisions will ensure better access to high-quality raw materials, while Sri Lanka aims to strengthen trade agreements, particularly with ASEAN nations. A new Customs Law will be introduced to streamline trade processes and modernize border controls.
Investment in export-driven industries, eco-industrial parks, and sustainable resource management is a priority, with an emphasis on public-private partnerships. The Government will lease underutilized state land for economic activities. Business operations will be simplified through reforms in property registration, tax payments, contract enforcement, and credit access, including a “one-stop-shop” for business approvals.
Public Sector Salary Hikes and Employment Plans
A key feature of the Budget is a Rs. 345 billion allocation for public sector salary increases. The minimum monthly basic salary will rise by Rs. 15,750, from Rs. 24,250 to Rs. 40,000, incorporating existing allowances into base salaries. Employees across judicial services, public corporations, statutory boards, universities, and the military will also receive salary adjustments.
Annual salary increments will increase by 80%, from Rs. 250 to Rs. 450. The total salary revision cost is estimated at Rs. 325 billion, to be implemented between April 2025 and January 2027. Retirement benefits for employees retiring from January 2025 will be recalculated based on the new salary structure, leading to higher pensions. The distress loan limit for public servants will also increase from Rs. 250,000 to Rs. 400,000.
Public Sector Expansion
Despite recommendations to downsize, the Government plans to recruit 30,000 new employees for essential public services, allocating Rs. 10 billion for this initiative in 2025. Unemployed graduates, who have often been hired through ad-hoc programs, will be a primary focus. Recruitment will prioritize skill-based hiring, with an emphasis on training and role suitability.
Sri Lanka’s public sector currently employs 1.8 million people, about 15% of the total workforce. While there are shortages in key areas such as healthcare—with only 38,000 nurses compared to over 100,000 development officers—many graduates are employed without clear job roles. The Government’s hiring plan seeks to address this imbalance.
Pension Reforms
The Budget proposes phased pension revisions for retirees before January 2020 to ensure fairness. The first phase, beginning in July 2025, will align pre-2018 retirees’ pensions with the 2018 salary scale, with Rs. 10 billion allocated for this adjustment. Further revisions in 2026 and 2027 will align pensions with subsequent salary structures.
Acknowledging economic hardships caused by COVID-19, political instability, and the broader downturn, the Government is dedicating Rs. 10 billion to recruiting unemployed graduates into public service, despite concerns about efficiency and lack of prior training.
Conclusion
Sri Lanka’s 2025 Budget attempts to balance economic recovery, social welfare, and fiscal responsibility. While salary hikes, pension reforms, and public sector expansion aim to uplift workers, concerns remain about their impact on financial stability.
The Government’s emphasis on economic democratization, investment, and trade reforms seeks to position Sri Lanka for long-term financial security and sustainable growth.
