Budget 2026: Continuing the trajectory of fiscal consolidation

The 2026 Budget has been hailed for continuing the trajectory of fiscal consolidation and reforms. Compliance with the IMF-mandated revenue-based fiscal consolidation has been instrumental in restoring macroeconomic stability and normalcy from the depths of economic devastation experienced in 2022.

According to the 2025 Revised Budget Estimates, the Budget deficit for this year is expected to be Rs. 1,448 billion, compared to Rs. 2,040 billion in 2024. The Treasury is not expected to borrow at all from banks to finance the shortfall, thus, leaving more financial resources available to fund the requirements of the private sector-led investments.

In a salutary move, the Government has envisaged to consolidate the functions of the Industrial Development Board (IDB), National Enterprise Development Authority, and Small and Medium Enterprise Development Division and bring them under the supervision of the IDB. Hopefully, the move would establish an integrated framework for the development of SMEs in the country. The Government intends to provide credit guarantees for loans amounting to around Rs. 7 billion next year to enable SMEs to obtain loans without collateral under the National Credit Guarantee Institution, which began its commercial operations last January.

Highlighting the importance the administration has placed on the promotion and development of exports, the Government has allocated a significant amount of funds to the premier State Export Promotion and Development agency – the Sri Lanka Export Development Board (EDB). The EDB has been allocated Rs. 250 million under the National Export Brand Promotion Plan while a further Rs. 250 million in addition to the provisions allocated to the EDB’s routine activities such as participation in trade fairs, promotion of SMEs, etc. 2026 will be a landmark year for the country’s export sector as the EDB plans to host Sri Lanka Expo 2026 after a gap of 14 years.  The event is expected to attract around 1,500 participants, including exporters, SMEs, buyers, and investors.

Apart from achieving fiscal prudence and discipline, the Government also needs to focus on accelerating economic growth to provide tangible benefits to the masses. With the IMF program in effect, the Government has been constrained in terms of spending extensively on development projects. Under such circumstances, policymakers need to think out of the box and vigorously explore avenues such as Public-Private Partnerships (PPPs). Our giant neighbour India has achieved considerable progress in infrastructure development by successfully adopting the PPP model in spheres like highway development, the creation and management of modern airports and ports, railway station redevelopment, and large-scale renewable energy projects. The Government has moved in the right direction in this regard by drafting the PPP Act and plans are underway to introduce the act early next year.

The Budget has also allocated Rs. 5 billion to increase the current minimum daily wage of estate workers from Rs. 1,350 to Rs. 1,550 apart from paying a daily attendance incentive of Rs. 200. However, critics have described it as unwarranted intervention on the part of the Government. Industry experts have slammed the move due to its absence of productivity linkage.

The implementation of Budget proposals effectively has been a huge cause of concern for a considerable period of time. Archaic and cumbersome procurement guidelines and regulations have always stifled the implementation of Budget proposals. There is a huge responsibility on the part of the public sector officials to contribute effectively towards the realisation of Budgetary objectives.