The Sri Lankan Government’s supplementary budget allocation of Rs 500 billion for cyclone Ditwah recovery, passed by Parliament, raised 2026 primary expenditure to 13.7% of Gross Domestic Product (GDP), breaching the Public Finance Management Act (PFMA) limit of 13%, the Minister of Finance’s Fiscal Strategy Statement 2027 released last month shows.

“Reflecting the hard-won gains in macroeconomic stability, fiscal aggregates in 2025 surpassed their annual estimates. However, this momentum is expected to be temporarily disrupted in 2026 due to the fiscal impact of cyclone Ditwah, which necessitates an additional allocation of Rs 500 billion,” the report said, referring to the emergency fund that had been drawn up to support recovery.

“As a result, primary expenditure is estimated to exceed the ceiling by 0.7 percentage points, reaching 13.7% of GDP in 2026.”

Sri Lanka is meant to adhere to the primary expenditure limit of 13% of GDP, as part of the fiscal responsibility framework under the Public Financial Management Act, No. 44 of 2024. The clause maintains that Sri Lanka must limit annual Government expenditure, excluding interest payments on debt, within 13% of GDP, regardless of revenue levels.

However, if and when required, the Government is capable of exceeding the limit through the PFMA’s escape clause, which the Ministry of Finance report reiterated in its comments on the exceeded expenditure limit.

“The Government has activated the escape clause provided under the PFMA, which permits a temporary and targeted breach of the primary expenditure ceiling under such circumstances,” the report said.

Furthermore, the report added that the overall balance, which had recorded a deficit of 2.3% of GDP in 2025, is to widen to -5.6% in 2026, bringing total expenditure to 21.4% of GDP owing to the rise in expenditure related to cyclone Ditwah this year.

“The overall balance is estimated to widen to -5.6 % of GDP in 2026, owing to the increase in total expenditure to 21.4 % of GDP arising from unplanned expenditure associated with cyclone Ditwah.”

The report also noted that total revenue and grants were projected down from the 16.7% of GDP recorded in 2025 to 15.8% of GDP in 2026, with this ratio expected to remain broadly unchanged through 2031.