2027 Budget to cap primary spending at Rs. 5.1 t as deficit narrows from 2026 peak

• Primary expenditure ceiling fixed at 12.9% of GDP under Fiscal Strategy Statement 2027
• Budget deficit projected to narrow to 4.5% of GDP in 2027 from an estimated 5.6% in 2026
• Government targets revenue at 15.5% of GDP, public investment above 4% and a primary surplus of 2.6% from 2027 onwards

The Government has set a primary expenditure ceiling of Rs. 5.064 trillion, or 12.9% of GDP, for the 2027 Budget while projecting the overall Budget deficit to narrow to 4.5% of GDP next year from an estimated 5.6% in 2026, according to the Fiscal Strategy Statement (FSS) 2027.

The statement positions the statutory primary expenditure ceiling as the Government’s principal fiscal anchor, limiting primary spending to below 13% of GDP during the first five years of the medium-term fiscal framework in support of debt reduction and fiscal sustainability.

For 2027, the ceiling has been fixed at 12.9% of GDP, equivalent to Rs. 5.064 trillion, consistent with a primary surplus target of 2.6% of GDP and total revenue and grants of 15.5% of GDP. The indicative ceiling remains unchanged at 12.9% of GDP through 2031, with annual revisions to be made through future Fiscal Strategy Statement updates.

The FSS projects the overall Budget deficit to remain below 5% of GDP from 2027 onwards, following the temporary widening to an estimated 5.6% of GDP in 2026. The deficit is projected at 4.5% of GDP in 2027, before narrowing further to 4.3% in 2028, 4% in 2029, 3.8% in 2030 and 3.5% in 2031.

The FSS said the exceptionally low Budget deficit of 2.3% of GDP recorded in 2025 reflected stronger Government revenue, containment of recurrent expenditure and lower-than-planned execution of capital expenditure.

Revenue and grants are projected at 15.5% of GDP from 2027 through 2031, comprising total revenue of 15.4% of GDP, including tax revenue of 14.2% of GDP and non-tax revenue of 1.2% of GDP, together with grants of 0.1% of GDP. Total expenditure is projected to decline from 20% of GDP in 2027 to 19% by 2031, reflecting continued expenditure rationalisation.

Within the overall expenditure envelope, capital expenditure and net lending, which includes public investment, is projected at 4.4% of GDP from 2027 onwards, in line with the Government’s policy of maintaining public investment above 4% of GDP to support infrastructure development and long-term productivity.

The FSS also projects a primary surplus of 2.6% of GDP from 2027 through 2031, following an estimated surplus of 2.1% in 2026. The Government described the record 5.4% primary surplus achieved in 2025 as evidence of the importance of maintaining sustained primary surpluses to restore fiscal sustainability, reduce debt and rebuild fiscal buffers.

Nominal GDP is projected to increase from Rs. 36.0 trillion in 2026 to Rs. 39.3 trillion in 2027 and Rs. 55.4 trillion by 2031. Real GDP growth is forecast at 4.2% in 2027 before easing to around 4% over the remainder of the projection period, while nominal GDP growth is projected to remain at 9% annually.

The Fiscal Strategy Statement also reiterates the Government’s objective of reducing public debt to below 95% of GDP by 2032. Under the baseline scenario, public debt is projected to decline to around 91% of GDP by 2030, achieving the target ahead of schedule.

The Government said maintaining revenue above 15% of GDP, keeping primary expenditure below the statutory ceiling, sustaining primary surpluses and maintaining public investment above 4% of GDP would remain the cornerstones of its fiscal strategy under the Public Financial Management Act and its commitments under the IMF-supported Extended Fund Facility program.