• Praise tempered by concern over repeated reform agenda 
• Analysts say execution, not design, will define success of Budget 2026
• Advocata cautions against widening deficit as IMF exit nears
• Biz groups hail investor-friendly measures but urge faster delivery
• Private sector calls for clearer incentives and a true single-window system

Following the announcement of the Government’s 2026 Budget by President Anura Kumara Dissanayake in his capacity as Minister of Finance, most economists, business chambers, and associations have expressed the view that the Budget is largely agreeable. 

However, many have pointed out that the reform agenda proposed in the 2026 Budget largely echoes the initiatives outlined in the 2025 Budget. Therefore, the general consensus is that the most appropriate yardstick to measure the success of the 2026 Budget will be its effective implementation.

Speaking to The Sunday Morning Business, several economists and office bearers of various business chambers and associations shared their views on the 2026 Budget. 

‘SL’s fiscal position stronger than expected’

Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe noted that overall, the Government’s 2026 Budget appeared to be on track, particularly as the fiscal situation remained relatively strong – likely even stronger than what the Government has projected for both this year and the next.

“On the fiscal side, revenue has been doing consistently better than expected over the last year, but also, while there are structural reasons causing recurrent and capital spending to remain constrained, the fiscal situation remains quite strong,” he added.

On achieving revenue targets, he noted that most of the revenue collected was not from vehicle imports. When excluding vehicle-based revenue, Sri Lanka has likely achieved the 15% GDP target with other revenues, and thus he believes it should not be a major problem.

“Pent-up demand for vehicle imports will slow down, particularly next year. However, there will still be some amount of demand, and we will see overall consumer demand picking up next year, increasing tax collection across many categories,” he added.

Commenting on the feasibility of achieving the 87% debt-to-GDP target by 2030, Damsinghe explained that the way in which the International Monetary Fund (IMF) had set its Debt Sustainability Analysis (DSA) at that time was based on debt sustainability models and data available to it, which limited how far it could push a country in terms of fiscal adjustment. 

He noted that Sri Lanka had never previously conducted a comprehensive fiscal strength assessment, which meant the IMF had to adopt a more cautious and gradual approach to fiscal consolidation. Even then, he observed that there was widespread scepticism that Sri Lanka would ever be able to achieve a primary surplus of 2.3%.

“The fact that we are overperforming on the fiscal side is the main reason we can do that. Also, the earlier primary surplus target was 2.3%, while this time the budget is showing a primary surplus target of 2.5%, so it is possible that the IMF has even upgraded its debt targets based on this. Therefore, I believe that being below 90% by 2030 is quite possible based on the current context,” he added. 

‘Budget 2026 success hinges on effective execution’ 

Advocata Institute CEO Dhananath Fernando stated that the 2026 Budget did not appear to include any major expenditure proposals that would place additional pressure on Government spending. He further noted that, in terms of reforms, it was largely similar to the 2025 Budget. Therefore, he was of the view that the key factor determining the success of the 2026 Budget would be its effective execution.

Fernando also pointed out that while the 2026 Budget envisaged an increase in Government revenue, it also projected a rise in Government expenditure at an even faster rate, which would result in a widening of the fiscal deficit in 2026, though still in line with the IMF programme. He emphasised that, with Sri Lanka expected to exit the IMF programme in 2027, it was vital to ensure that the country did not revert to its old habits and jeopardise the ongoing economic recovery.

“If you look at the numbers, we are basically planning to increase our budget deficit slightly compared to 2025, according to the estimated values. While both income and expenditure are expected to rise, expenditure will be rising at a higher rate. 

“As a result, the budget deficit is also expected to be somewhat wider, but it will remain within the IMF framework. The challenge will be that after next year, we will also slowly move out of the IMF programme. Therefore, we have to make sure that we do not return to our bad habits and slowly deviate from the process,” he stated. 

Fernando praised President Dissanayake’s emphasis on macroeconomic stability in the 2026 Budget speech but pointed out that achieving the 7% economic growth target would require broad-based reforms involving Public-Private Partnerships (PPPs), State-Owned Enterprise (SOE) management, the single-window system, Customs reform, and other related initiatives, many of which had also been highlighted in the 2025 Budget.

Accordingly, he reiterated that the execution of the Budget proposals would be key to ensuring the success of the 2026 Budget and expressed hope that the promised reforms would begin to materialise by the first or second quarter of 2026.

Addressing how Sri Lanka should reframe its social welfare spending to not only provide relief but also foster long-term economic participation, he pointed out that the 2026 Budget did not appear to introduce any major reforms to the existing social welfare scheme, other than new proposals aimed at increasing employment opportunities for the disabled community and providing greater focus on elderly care. 

Fernando further stated that such major reforms were unnecessary, emphasising instead the need to refine and strengthen the existing ‘Aswesuma’ programme. Accordingly, he noted that while the 2026 Budget did not introduce any significant new social welfare or social security programmes, it was possible that a portion of capital expenditure may be allocated towards improving the ‘Aswesuma’ initiative, though this was not specifically mentioned during the speech and could be addressed at a later stage.

The Advocata Institute CEO also emphasised the need to ensure a more targeted and data-driven approach to social support, noting that while the current selection process for social welfare spending was somewhat data-driven, there remained significant room for improvement. He added that although the process was not entirely ad hoc, the quality and accuracy of data collection could be considerably enhanced.

‘Improving welfare targeting mechanisms crucial’ 

Advocata Institute Director Riyad Riffai highlighted the critical need for the Government to maintain a social welfare scheme, noting that approximately 20% of the population lived below the poverty line and depended on such Government intervention for their survival. 

However, he emphasised the urgent need to improve the targeting mechanisms within these welfare programmes to ensure that Government spending truly reached those who needed it most.

“The problem is targeting. People move in and out of poverty all the time — how do you keep track of that? 

“Normally, the grama niladhari is responsible for updating these records, but there are many inefficiencies and some corruption as well. There are well-known cases of individuals who continue to receive Government grants even though they no longer qualify. That’s the real issue. The targeting mechanism must be improved so that assistance reaches only those who genuinely need it,” he said. 

‘SME relief promises positive if they materialise’ 

Several Budget proposals target regional and Small and Medium-sized Enterprise (SME) development, from credit schemes and women entrepreneurship programmes to rural industry zones. However, as highlighted by many, the success of the 2026 Budget depends on its effective execution. 

On SME relief, Ceylon Federation of Micro, Small, and Medium Enterprises (CFMSME) President Mahendra Perera also noted that if proposed measures were to materialise, it would be a positive outcome.

“However, we expected these relief measures and synergies in last year’s Budget as well. Over the past year, nothing materialised. This year, effort has been taken, so if it proceeds as stated, it will be beneficial for SMEs,” he added. 

‘Positive steps to promote investment’ 

Free Trade Zone Manufacturers’ Association (FTZMA) Chairman Dhammika Fernando, discussing his view on the 2026 Budget’s focus on export promotion and investment, noted that the Budget speech, with several investment-related proposals, indicated that the Government was serious about promoting investment in the country.

According to Budget 2026, Rs. 1,000 million has been allocated for the development of services related to investment zones, and Rs. 250 million is to be allocated to the Export Development Board to promote and facilitate exports.

Fernando primarily highlighted proposals made regarding strategic development investments and improving PPPs on investment in order to regulate investment approvals and investor protection.

“We have suggested these to the Government a few times in our budget proposals as well, since policy consistency is highly sought after by investors when deciding on bringing investment to the country. If policies are inconsistent, investment will be deterred. The proposal regarding an investment protection act in the Budget speech is thus highly welcome. We consider this as a notably positive development,” he added.

Fernando also highlighted the proposals made regarding a National Single Window framework, for which the Budget has allocated Rs. 2,500 million.

“If this is to be properly implemented, it can make the often-elusive single window hope a reality. Further, the Government has taken into consideration concerns regarding land allocation, proposing a digitalised data centre and establishing proper laws on allocating land for investment. These are positive approaches to attract investment,” he added.

Fernando also highlighted the proposals made regarding SMEs, especially in integrating SMEs into the value chain by clustering the organisations meant to serve SMEs in order to support main investment zones. He also acknowledged proposals on revisiting high-technology parks that have become redundant, which would be made open to private sector investments.

The Budget has allocated Rs. 0.2 billion for promoting resilience and opportunity for an inclusive recovery programme through education and skills development, cultivating a supportive environment for private sector and SME growth.

‘Essential to facilitate pvt. sector participation, investment’ 

National Chamber of Exporters (NCE) Secretary General/CEO Shiham Marikar emphasised the need for private sector participation to achieve the economic growth targets outlined in the 2026 Budget and urged the Government to establish clear communication channels with the private sector, identifying the specific areas of the economy that were being promoted for private investment.

“It has to create awareness as to which areas are available for investment,” he stated.

Marikar further stated that in order to attract private sector investment into the priority sectors identified by the Government, it was vital that the Government clearly communicated tax and other incentives that would be offered to investors.

He emphasised the need for the Government to ensure a level playing field for local investors alongside foreign investors.  

“When there is an investment involved in a particular project, there should be a level playing field for the Sri Lankan investor against the investor coming from overseas. My understanding is that in certain cases local investors are required to go through additional steps when compared to overseas investors,” stated Marikar.

He further highlighted the need to introduce a single-window concept through which all information related to available investment opportunities could be accessed, and which further facilitated the investment process without unnecessary red tape or bureaucratic obstacles.  

Commenting on Special Economic Zones, he called on the Government to look at introducing the ‘plug and play’ concept similar to other countries. “Where the infrastructure is already in place – warehouses, electrical connections, etc. – investors can just plug and play their projects,” he explained.

‘Domestic outlook stable’ 

Economist and researcher Umesh Moramudali stated that, in terms of the 2026 Budget, the Government was projecting an economic growth of around 4%. While not a significant increase, he noted that it represented meaningful progress for a country emerging from a debt default.

He further stated that, in terms of how growth would be affected by domestic and external headwinds, not many domestic challenges were anticipated for next year, primarily due to improving investor and business confidence.

“Largely because the Government is pursuing a path of fiscal consolidation under the IMF programme, there appears to be greater predictability for businesses. In terms of local dynamics, the stability provided by the Government through the IMF programme should support modest but steady growth from a domestic perspective,” he stated.

Commenting on external headwinds, Moramudali noted that it was difficult to predict their impact at this stage, given the highly volatile global environment and ongoing geopolitical rivalries. He explained that it remained uncertain what kinds of trade shocks a small economy such as Sri Lanka may face, particularly since the US was its largest export market while China remained its main source of imports. Considering these risks, he added, forecasting potential outcomes continued to be a significant challenge.

Commenting further on the existing risks to macroeconomic stability in 2026 and the early signs of structural resilience in the economy, he stated that the global economy was currently undergoing a major reconfiguration. In such a shifting environment, it is difficult to predict how events will ultimately unfold or what kind of world order will emerge. 

Within this uncertainty, risks will inevitably persist — particularly for small states like Sri Lanka. However, Moramudali noted that there was little countries of Sri Lanka’s size could do to influence these global dynamics. Therefore, the primary macroeconomic risks to stability in 2026 are likely to be external.

“I don’t expect significant domestic risks to emerge in the short term — that is, over the next year. As for whether the Sri Lankan economy is resilient enough to withstand such risks, not necessarily. We haven’t sufficiently diversified our exports and our overall export base remains low. Because of that, Sri Lanka remains highly vulnerable to global shocks,” stated Moramudali.

However, he admitted that there was little that the Government or the country could do in the short term to address these vulnerabilities, as the structural issues we faced could not be resolved overnight.