Sri Lanka’s economic growth requires stronger productive investments, but the country is failing to fully utilise its capital expenditure around Rs 1.2 to 1.4 trillion, warning that a budget surplus resulting from unspent capital expenditure should not be viewed as a fiscal strength, Gajma and Co, Founder N R Gajendran said speaking on Advocata Institute ‘Why Tax Policy is Hurting Sri Lanka’s Economy’ programme on Monday (9).
Speaking at the programme, Gajendran said: “Sri Lanka should focus on increasing productive investments, attracting foreign investors rather than celebrating a budget surplus caused by underspent capital projects. Capital expenditure is not being carried out properly. Around Rs 1.4 trillion budget is allocated for capital expenditure, while only around Rs 200-300 billion is spent under individual sectors, leaving a substantial amount of expenditure unspent, resulting in a surplus in the economy.”
“A budget surplus is not a good thing if it is coming from non-spending or capital expenditure,” he said.
According to the Ministry of Finance, Planning and Economic Development budget estimates, in Sri Lanka’s 2026 budget, total government expenditure is projected at approximately Rs 7.06 to 8.98 trillion (including debt servicing), with capital expenditure allocated around Rs 1.4 trillion, where mid-year fiscal operations show recurrent and capital segments spent around Rs 200-300 billion per individual category.
“Failing to make productive investments could compromise the country’s welfare and legitimate expectations of posterity. If the country does not invest in the investment aspect, which is productive for the future of the country, then the country will be affected,” Gajendran said.
He also said: “Foreign investments have not come into Sri Lanka as expected despite the country’s strategic location and access to technology and despite the potential, the country has been in cross border trade for a long time, with complex legal policies and the country’s legal and policy administration should focus on attracting investments to the country, while incentives for the corporate sectors are being provided.”
“Sri Lanka could have aimed to become a major hub for foreign investments, as the Middle East conflict inflated, but the country was unable to attract investors as expected, despite the country’s strategic potential,” Gajendran added.
According to the Inland Revenue Department, under the Inland Revenue (Amendment bill) Act, No. 11 of 2026, which came into effect on 3 June 2026, Sri Lanka introduced criminal penalties for specific willful tax compliance failures.
Gajendran said: “Recently Sri Lanka criminalised the tax laws. And in this aspect, the investor confidence acts as a key factor, where they are closely watching and if the trust is not built-up, investors are not willing to invest even with the country’s existing potential opportunities because they are uncertain, which will negatively impact to encourage investments and long-term economic growth.”
He further said: “Sri Lanka should focus on policies to address these issues and maintain investor confidence rather than affecting overall investment relations, and the country should also maintain a data-driven approach towards economic growth, where investment is a key component for the country’s growth, and with that growth of the Sri Lankan economy will fall into pace.”