Courtesy The Daily Mirror

Today is the budget day. The NPP government, under the leadership of President Anura Kumara Dissanayake, will present its second maiden budget today when the country is at a critical juncture between hard-won stabilisation and the promise of sustainable growth. The past two years have been spent under the IMF programme, with the focus on restoring macroeconomic balance.  Sri Lanka went for the IMF programme in March 2023 under the previous government. The current economic stabilisation is attributed to the successful continuation of the programme despite the change of government in the last presidential election. Now, a task lies ahead for the NPP government—to move from stabilisation to economic transformation.

The IMF Extended Fund Facility (EFF) succeeded in reversing the economic downfall. Inflation is under control, foreign reserves have improved modestly, and fiscal discipline has been restored through higher tax revenues and reduced monetary financing. Yet, the real economy remains sluggish, with growth hovering way below the expected level, unemployment rising, and living costs continuing to burden people. Macroeconomic stability alone cannot guarantee prosperity. In its 2026 budget, the government must therefore articulate a credible pathway for growth acceleration, job creation, and social relief without undermining fiscal prudence. Fiscal consolidation remains at the core of the IMF programme. The sharp rise in direct and indirect taxes over the past two years has already tested the resilience of businesses and middle-income earners. Now is the time to lay the groundwork further for the enhancement of investments and production. 

The government should focus on widening the tax base, improving digital tax administration, and rationalising exemptions rather than repeatedly squeezing the same segments of the economy. 

If the 2026 Budget is to mark a turning point, it must send a strong message of confidence to investors—both domestic and foreign. Bureaucratic red tape, policy unpredictability, and corruption have long undermined Sri Lanka’s investment climate, as highlighted even by the U.S. Investment Climate report on Sri Lanka. The NPP administration’s early emphasis on clean governance has been welcomed, but investors now expect policy clarity and consistency. The proposed establishment of a ‘Single Window’ investment facilitation system, if implemented effectively, could reduce administrative delays that deter investors. 

Equally important is the need to revive exports. Sri Lanka’s export basket remains narrow and overly dependent on apparel and tea, while regional competitors have diversified rapidly. Budgetary measures to support new export sectors—ICT, logistics, agro-processing, and green manufacturing—can provide a crucial boost. Linking these sectors to regional value chains through trade facilitation and infrastructure improvement is essential to enhance competitiveness. 

One of the most significant reforms under the IMF programme involves restructuring State-Owned Enterprises (SOEs). With over 400 SOEs, many operating at a loss, the state’s fiscal burden has become unsustainable. The government has been talking about the need for the revitalisation of these SOEs. It is time to walk the talk. The 2026 Budget should focus attention on it. Also, a key focus of the budget should be to balance fiscal consolidation with social protection. Around 25 per cent of households remain vulnerable to poverty due to stagnant wages and rising living costs.  People are normally used to looking at annual budgets for benefits in terms of pay hikes for the public sector, an increase in welfare allowances for various sectors, price reduction of essential items, subsidies for the agriculture sector, etc. Right throughout history, the budget was projected as a box containing surprises for the public. 

Instead, it should be the blueprint for economic growth. Under the current circumstances, it will be challenging for the government to give relief to people at this juncture. The government is under compulsion to manage expenditure. In the realisation of the IMF targets, tangible relief measures for people are out of the question.

But, the government should improve its efficiency to improve the business, investment climate of the country rather than trying populist giveaways.  The government, in the budget, can still inspire confidence through efficient governance, transparency, and a clear reform agenda. Today, bureaucracy is not moving fast enough. Corruption remains at different levels of governance and administrative layers, though there are no major allegations against key politicians of the ruling party. It is important to address these issues. Ultimately, the success of the 2026 Budget will rest on implementation. Successive governments have often produced ambitious fiscal plans only to falter at the execution stage due to inefficiency, corruption, and weak institutional capacity. This time, the government cannot afford such complacency. It has a mandate only to undo past mistakes. Let’s wait for the budget to be presented to see what is in store for the country!