Overview
- President Anura Kumara Dissanayake, as Finance Minister, presented the government’s third Budget, the 81st Budget Speech, to Parliament on November 12.
- The Budget is framed around moving the economy “from stability towards transformation.”
- It focuses on investment, exports, productive jobs, social welfare and sustainability.
- The government says every proposal will have an accountable institution, outcome indicators and a cash flow plan.
Economic backdrop
- Growth was 5% in 2025, 5.1% in Q1 2026 and 4.2% in Q2 2026.
- The 2025 budget deficit was 2.3%, the lowest in 68 years.
- Government revenue rose from 8.2% of GDP in 2022 to 16.6% in 2025.
- Central Government debt fell from 114% of GDP in 2022 to 95% in 2025.
- Interest payments took 39.6% of revenue by September 2026, down from 79.1% in 2022.
- Foreign reserves are above USD 7 billion, and workers’ remittances are expected to exceed USD 9 billion this year.
- Fitch upgraded Sri Lanka from CCC+ to B-, and the World Bank reclassified it as an upper middle-income country.
- Inflation has risen from 2.1% in December 2025 to 8.3% in October 2026.
- The current account moved from a USD 1,853 million surplus in the first nine months of 2025 to a USD 420 million deficit in the same period of 2026.
- The government blamed the Middle East war and the Strait of Hormuz closure. It said more than Rs. 147 billion was spent to cushion the impact.
- Cyclone Ditwah damage is estimated at about USD 3.4 billion (Rs. 1.022 trillion).
- The government warned that El Niño is expected to peak in February 2027.
Fiscal path and IMF
- The medium-term growth target is 7% or higher.
- Core targets are a primary surplus of 2.3% of GDP and a deficit below 5%.
- Revenue is to stay at 16% of GDP or more, and rise gradually to about 20% over the long term.
- Primary expenditure will temporarily rise to 13.6% of GDP in 2027 because of Ditwah reconstruction, then return to 13% from 2028.
- Capital expenditure of Rs. 2,000 billion is allocated, equal to 5.12% of GDP in total public investment.
- The IMF programme ends in March 2027. A committee led by the Deputy Finance Minister will study whether to enter another programme.
- Foreign debt service is USD 2,986 million in 2027 and USD 3,574 million in 2028.
Tax measures
- The monthly tax-free threshold rises from Rs. 150,000 to Rs. 162,500.
- The tax bands are widened and the rates set at 6%, 12%, 18%, 24%, 30% and 36%.
- The top rate will apply from Rs. 433,000 a month, up from Rs. 358,000.
- Taxpayers get extra monthly relief of Rs. 750 to Rs. 15,750.
- Combined with the 2025 reforms, total relief ranges from Rs. 4,250 to Rs. 36,250 a month.
- VAT is removed on exercise books, textbooks and other printed books.
- The Special Commodity Levy is cut on sprats (Rs. 100 to Rs. 10 per kg), Maldive fish (Rs. 302 to Rs. 10 per kg) and dried chillies (Rs. 50 per kg). This takes effect from November 13, 2026.
- CESS is cut by 25% on 800 tariff lines, and the 10% PAL on newsprint is removed from January 1, 2027.
- The levy on imported sugar rises by Rs. 10 per kg to protect local producers.
- The Tourism Development Levy is abolished.
- BOI-approved export manufacturing and tourism firms investing at least USD 3 million can claim a 200% capital allowance.
- A review of betting and gaming taxes is planned.
- Bunker fuel for international shipping is exempted from the Social Security Contribution Levy.
Public sector pay and pensions
- The final phase of the 2025 salary revision is implemented in 2027, with Rs. 110 billion allocated.
- Executive officers’ monthly transport allowance doubles to Rs. 100,000.
- Doctors’ DAT allowance rises from Rs. 70,000 to Rs. 95,000.
- Nurses’ and paramedical staff’s special duty allowance doubles from Rs. 6,000 to Rs. 12,000.
- The university academic allowance rises by Rs. 25,000, and external lecturer rates triple to Rs. 4,500 an hour.
- Grama Niladhari travel allowance rises from Rs. 1,600 to Rs. 4,000.
- Judicial, Attorney General’s Department and prison officer allowances are also raised.
- Pensioners who retired between 2020 and 2024 get an interim allowance of Rs. 2,500 a month from July 1, 2027.
- A pension revision under the 2025 salary structure will begin with the 2028 Budget.
- Most increases take effect from July 2027, and several are split across 2027 and 2028.
Social protection
- Rs. 230 billion is allocated for allowances including Aswesuma.
- Allowances for kidney patients and persons with disabilities rise from Rs. 10,000 to Rs. 12,500.
- Rs. 25 billion goes to the Praja Shakthi rural development programme.
- A “Global Sri Lankan Heritage Citizen” programme offers free dual citizenship to the second and third generations of the diaspora.
- Migrant workers get a housing loan scheme of up to Rs. 5 million with interest subsidies.
- Housing aid per house under the programme rises from Rs. 1 million to Rs. 1.5 million.
Education, research and digital
- Rs. 35 billion is allocated for school digitalization, teacher development and infrastructure.
- Teacher trainees’ monthly allowance rises from Rs. 10,500 to Rs. 20,000 from April 2027.
- Rs. 23.8 billion is allocated for research and development.
- The digital economy ministry gets Rs. 18.5 billion.
- A Digital Economy Bill is expected to pass in Q1 2027, and a Cyber Security Authority is planned.
- Data centre investors will get electricity tariff concessions, and a legal framework for virtual asset service providers is proposed.
Business and investment
- Rs. 67.7 billion is allocated for interest subsidies and refinancing for SMEs, aiming at Rs. 174 billion in concessionary loans.
- Legislation in the pipeline includes the Public-Private Partnership Act, an Investment Protection Bill, a State-Owned Business Enterprises Management Bill and amendments to the Port City Commission law.
- 34 state enterprises have been identified for a holding company.
- An expert committee is looking at solutions for SriLankan Airlines, whose accumulated losses are Rs. 528 billion.
Infrastructure
- Rs. 251 billion is allocated for expressways and highways.
- Rs. 53.45 billion is set aside to complete the Kadawatha–Mirigama section of the Central Expressway by September 2028.
- Rs. 27 billion goes to the first phase of the Ruwanpura Expressway.
- Over Rs. 1,200 billion is planned to electrify three main railway lines. Rs. 45 billion of it is for the Maradana–Homagama line in 2027.
- A record Rs. 95 billion goes to railways and bus services.
- Rs. 77 billion goes to drinking water.
- About Rs. 100 billion is earmarked for rural roads.
- Port, airport and aviation upgrades are included, such as expanding Bandaranaike International Airport’s first terminal from 6 million to 9 million passengers.
Energy
- Renewables currently supply about 62% of installed capacity, and the target is 69% by 2029.
- Rs. 26.5 billion goes to strengthening the national grid.
- Battery storage tenders have fallen in price.
- Fuel storage and pipeline projects are planned, including a Rs. 16.3 billion Kolonnawa–Port pipeline.
Health, agriculture and other sectors
- Health gets Rs. 131 billion in capital expenditure.
- The plan is to build 1,000 Arogya Wellness Centres in 2027–2029.
- Six provincial district general hospitals are to be transferred to the central government.
- Agriculture proposals include freeing underused paddy land for other crops and turning Agrarian Service Centres into “one-stop shops.”
- The plantation sector gets Rs. 13 billion, with exports targeted to rise from USD 3 billion to USD 5 billion by 2030.
- Fisheries get Rs. 6.2 billion, with export earnings targeted to double to USD 600 million by 2030.
- Rs. 50 billion is set aside for district development programmes, at Rs. 2,000 million per district.
- Rs. 10 million is allocated per MP under the Decentralized Budget Programme.
Ditwah reconstruction
- Rs. 260 billion must be re-secured for 2027 from the Rs. 500 billion Supplementary Estimate, because some funds went unspent amid the Middle East war.
- A new Supplementary Estimate was tabled after the speech.
Political note
- In closing, the President criticised the Opposition for “superstitious beliefs” and “regressive thinking.”
- The speech came a day after the Opposition launched oversight.lk to track budget implementation.
