Beyond the facade: A strategic critique of 2026 Budget

President and Finance Minister Anura Kumara Dissanayake

The 2026 Budget was unveiled amid high public expectations, following an election campaign that promised economic recovery, social equity, and institutional reform. Yet beneath the surface of fiscal projections lies a troubling disconnect between political rhetoric and Budgetary reality. This critique examines how the Budget falls short of the promises made to the people of Sri Lanka—on poverty alleviation, public investment, debt reduction, and leadership accountability. It argues that true fiscal transformation requires more than numbers; it demands a philosophy of people’s leadership, where every rupee spent builds trust, capability, and national dignity.

Budgeting beyond the spreadsheet 

Sri Lanka’s 2026 Budget, framed within the IMF’s reform agenda and fiscal consolidation goals, reveals a persistent flaw in our performance architecture: targets are still derived from historical performance, not from institutional capability, geopolitics and global trade trends or organic growth. This inward-looking approach rewards underperformance, penalises ambition, and ignores the latent potential embedded in public systems, utilisation of resources, statesmanship, parliamentary leadership, and citizen resilience.

Revenue and expenditure: A surface-level surplus? 

Revenue and Grants are projected to rise to Rs. 5,700 billion, yet the Tax Revenue/GDP ratio declines from 13.0% (2025) to 12.4% (2026)—a signal of weak tax administration and limited base expansion. Grants remain negligible, at just 0.1% of GDP, reflecting diminished international confidence. Recurrent expenditure continues to dominate, with Rs. 5,400 billion allocated—nearly 78% of total spending. This suggests a system still focused on maintenance, not transformation. Capital expenditure, though increased to Rs. 1,530 billion, remains modest relative to the scale of infrastructure and institutional renewal needed.

Deficits and financing: The illusion of control 

The primary deficit narrows from -3.3% to -2.7% of GDP, but this is driven more by constrained spending than genuine revenue reform. Domestic borrowing surges to Rs. 3,630 billion, with bank financing rising sharply. This raises concerns about crowding out private investment and deepening fiscal dependence. Foreign financing increases, but without clear alignment to productivity-enhancing sectors or long-term competitiveness.

Budget Execution: What was achieved in 2025? 

The 2025 Budget projected Rs. 5,105 billion in revenue and grants. However, actual revenue collection by mid-2025 lagged, especially in non-tax revenue and grants. Tax revenue improved due to VAT and income tax reforms, but the Tax/GDP ratio peaked at 13.0%, then declined in the 2026 Budget to 12.4%. Recurrent expenditure exceeded projections, particularly in subsidies and transfers, which rose from Rs. 754 billion (2024) to Rs. 1,015 billion (2025), and are now Budgeted at Rs. 1,215 billion for 2026. Interest payments also increased, reflecting growing debt servicing pressure. The Budget deficit widened from Rs. 1.448 trillion in 2025 to Rs. 1.7 trillion in 2026. This reflects both revenue underperformance and expenditure rigidity, especially in salaries, subsidies, and interest. Domestic borrowing surged from Rs. 2.895 trillion to Rs. 3.630 trillion. Heavy reliance on bank financing (Rs. 1.8 trillion in 2026) raises concerns about crowding out private credit and inflationary risks.

While the 2026 Budget allocates just Rs. 3 billion for public transport, it sets aside Rs. 12.5 billion for Government vehicles—primarily for MPs and senior officials, with little transparency on necessity or usage. This disparity is not just fiscal—it’s philosophical. It reflects a leadership model that prioritises privilege over public service, optics over outcomes

The Government’s push to raise estate worker wages—reportedly up to Rs. 1,700–2,000 per day—has been framed as a long-overdue correction to decades of exploitation. But the timing, lack of productivity linkage, and absence of sectoral reform suggest this is more political theatre than economic strategy. While some estates offer       Rs. 50 per kilo above the norm as incentive, most wage hikes are flat, not tied to output or quality. Sri Lanka’s tea prices are already under pressure due to global surplus and declining demand. A wage hike without quality or branding reform will increase unit costs, making Sri Lankan tea less competitive. Many estate companies operate on thin margins. Without subsidies or tax relief, they’ll either cut jobs, reduce investment, or pass costs to buyers—raising retail prices and risking market share.

Estate worker wage hike: Symbolism vs. Sustainability - A brewing crisis?

The 2024–2025 wage increase for estate workers—raising minimum daily pay to Rs. 1,350, with proposals pushing it to Rs. 1,700–2,000—was framed as a long-overdue correction to decades of exploitation.  But the timing, lack of productivity linkage, and absence of sectoral reform suggest this is more political theatre than economic strategy. Yet the Budget fails to address the economic consequences of this move. Sri Lanka’s tea industry employs over 700,000 workers, and contributes over $1 billion annually, accounting for 11% of national exports. ( Sri Lanka’s tea industry faces crisis amid wage hike and tough conditions for workers - ABC News) A wage hike of this scale, without corresponding productivity gains or sectoral reform, increases unit labor costs and threatens price competitiveness in global markets already saturated with cheaper alternatives from Kenya, India, and Vietnam.

While some estates offer Rs. 50 per kilo above the norm as a productivity incentive, most wage hikes remain flat and untethered to output or quality. ( Wage Hike for Sri Lanka’s Tea Workers - ETP ) This disconnect means that estates operating on thin margins—especially in highland regions—will face difficult choices: cut jobs, reduce investment, or pass costs to buyers. The latter risks pushing Sri Lankan tea into a premium price bracket without the branding or quality differentiation to justify it. In a global market where Ceylon tea once led, Sri Lanka now risks pricing itself out of relevance.

Strategic blind spots

The Budget has turned a blind eye to this looming crisis. There is no allocation for sectoral modernisation, no tax relief for estates, and no investment in ethical branding or value-added exports. The Government’s silence on this issue reflects a broader pattern: geo-economic trends are ignored, and domestic policy is crafted in isolation. Without a coordinated response—linking wages to productivity, branding to market repositioning, and subsidies to reform—the wage hike may become a symbolic victory that undermines the very industry it seeks to uplift.

Misplaced priorities: Vehicles over vision

While the 2026 Budget allocates just Rs. 3 billion for public transport, it sets aside Rs. 12.5 billion for Government vehicles—primarily for MPs and senior officials, with little transparency on necessity or usage. This disparity is not just fiscal—it’s philosophical. It reflects a leadership model that prioritises privilege over public service, optics over outcomes.

Beyond the upfront Rs. 12.5 billion, the lifecycle cost of these 1,700 vehicles adds a staggering burden:

nInsurance costs Rs. 255 million/year, totaling Rs. 1.220 billion over four years

nService and maintenance costs Rs. 272 million/year, totaling Rs. 1.088 billion over four years

nTotal cost to taxpayers: Rs. 14.8 billion—nearly five times the public transport allocation

This is happening while hospitals are short of doctors and medicines, and 1,300 rural schools lack proper toilets. The Budget slashed education funding to 1.2% of GDP—the lowest in South Asia, even below Myanmar (2.0%) and Uganda (2.6%). These are not just numbers—they are broken promises. The Government pledged to uplift social welfare, improve rural infrastructure, and invest in human capital. Instead, it has chosen to invest in metal and rubber.

The Budget has turned a blind eye to this looming crisis in tea industry. There is no allocation for sectoral modernisation, no tax relief for estates, and no investment in ethical branding or value-added exports. The Government’s silence on this issue reflects a broader pattern: geo-economic trends are ignored, and domestic policy is crafted in isolation. Without a coordinated response—linking wages to productivity, branding to market repositioning, and subsidies to reform—the wage hike may become a symbolic victory that undermines the very industry it seeks to uplift

The contrast is stark. The campaign slogan—“Beautiful Country and Happy People”—now rings hollow. A country cannot be beautiful when its children lack sanitation, and its hospitals lack medicine. People cannot be happy when their leaders ride in luxury while they walk to underfunded schools and clinics. This Budget breaches the social contract. It is not just a misallocation—it is a moral failure.

Debt-to-GDP: A rising burden 

Despite IMF-backed reforms and the establishment of the Public Debt Management Office, Sri Lanka’s debt trajectory remains steep. In 2024, debt-to-GDP stood at 96.1%, already among the highest in the region. By June 2025, central Government debt rose to 99.5%, and when including state enterprise guarantees, the figure reached 104.1%. The 2026 projection shows debt-to-GDP hovering around 99%, with only marginal improvement forecast for 2027.

Growth forecasts: Optimism without architecture 

ADB projects 3.9% growth in 2025 and 4.5% in 2026, citing recovery in tourism, remittances, and private credit.  However, AKD’s Budget anticipates 7% growth within five years, based on macro stabilisation and reform momentum—but offers no sectoral breakdown or institutional roadmap. This optimism is not matched with clarity. Neither forecast explains which sectors will lead the growth or how institutional capability will be built.

Credit growth: A fragile recovery

Credit growth in 2025 has been widely cited as a sign of economic revival—but this is a dangerous misreading. The expansion is not driven by enterprise, investment, or industrial lending. Instead, it is fueled by credit cards, vehicle leasing, and pawning—a pattern that signals household distress, not dynamism. According to the Central Bank, pawning advances surged to Rs. 1.3 trillion by Q3 2025, up from Rs. 850 billion in 2023. This 53% increase is not a sign of liquidity—it is a symptom of desperation, as families mortgage their gold to meet daily expenses.

Vehicle leasing, too, has spiked—not for commercial expansion, but for personal survival. The Central Bank has since moved to tighten loan-to-value ratios on vehicle credit, citing concerns over mal-investment and inflationary risk.  ( Sri Lanka Central Bank tightens vehicle credit by slashing LTV ratio | EconomyNext) Meanwhile, inflation turned negative in mid-2025, reaching   -1.0%—the first recorded deflation in Sri Lanka’s modern economic history. While this may seem like falling prices are a good thing—but they actually show that people are spending less because they’re struggling. This actually  reflects a collapse in consumer demand and purchasing power. In such a context, projecting 4.5% GDP growth without addressing the erosion of household income is not just optimistic—it is fiscally incoherent. The Budget, however, offers no structural response to this silent crisis. It celebrates credit expansion while ignoring the fact that Sri Lankans are borrowing to survive, not to build.

Global headwinds ignored: Makes it A Frog-in-the-Well Budget?

One of the most glaring omissions in the 2026 Budget is its failure to acknowledge the shifting tides of global trade. The newly imposed 30% U.S. tariff on Sri Lankan garments—down from an initial 44%—is expected to cost the country between $110 million and $290 million in export earnings. With the U.S. accounting for nearly 40% of Sri Lanka’s apparel exports, this is not a marginal issue—it is a national crisis. First Capital Research warns of a 10–15% drop in export volumes and an 11% decline in employment in the sector. Yet the Budget makes no mention of mitigation strategies, no stimulus for affected workers, and no pivot toward value-added manufacturing. It is as if the Government is Budgeting in a vacuum—unaware that global supply chains are being redrawn ( Sri Lanka: Apparel sector could face up to $290 million loss from 30% US tariff - Business & Human Rights Resource Centre)

Tourism and the EU slowdown: Missed signals

The same myopia applies to tourism. The 2025 target for tourist arrivals was missed, and the outlook for 2026 is clouded by Europe’s deepening recession — a region that supplies nearly half of Sri Lanka’s high-spending visitors. With the EU grappling with inflation, energy shocks, and consumer contraction, Sri Lanka’s tourism recovery cannot be taken for granted. Yet the Budget offers no contingency planning, no diversification strategy, and no investment in nation branding or market repositioning. The silence is strategic only in its avoidance. In ignoring these global tremors, the Budget behaves like a frog in the well—oblivious to the storm clouds gathering beyond its fiscal rim.

Strategic gaps in the 2030 promise 

The Government’s stated goal to reduce debt-to-GDP to 87% by 2030 is outlined in the Medium-Term Debt Management Strategy (2025–2029). However, the plan lacks clarity on growth drivers, revenue reform, and institutional capability. The Tax/GDP ratio is projected to decline from 13.0% (2025) to 12.4% (2026), undermining fiscal consolidation. There is no competency-based Budgeting or performance-linked allocations.

What people’s leadership demands 

To reclaim fiscal dignity, Sri Lanka must audit debt by purpose—prioritising borrowing for capability-building, not consumption. Budget allocations must be linked to institutional outcomes. Every rupee must build trust, talent, or transformation. Citizens must be engaged in Budget tracking and literacy. State enterprises must be reformed to reduce contingent liabilities. Investment must be redirected toward public transport, education, health and digital infrastructure—not political optics.

Closing reflection

A national Budget is more than a ledger—it is a leadership document. It is a nation’s moral compass, a mirror of its priorities, and a promise to its people. Sri Lanka’s 2026 Budget, while technically sound, lacks emotional cadence, institutional imagination, and strategic courage. It turns a blind eye to the farmer whose harvest rots, the garment worker facing tariffs and layoffs, the household mortgaging its future through pawning, and the entrepreneur waiting for a signal of trust.

 A national Budget is more than a ledger—it is a leadership document. It is a nation’s moral compass, a mirror of its priorities, and a promise to its people. Sri Lanka’s 2026 Budget, while technically sound, lacks emotional cadence, institutional imagination, and strategic courage. It turns a blind eye to the farmer whose harvest rots, the garment worker facing tariffs and layoffs, the household mortgaging its future through pawning, and the entrepreneur waiting for a signal of trust. This is not just a failure of numbers—it is a failure of narrative

This is not just a failure of numbers—it is a failure of narrative. The Budget ignores global tremors, treats poverty as a statistic, and growth as a projection. It behaves like a frog in the well, unaware of the storms gathering beyond its fiscal rim. To move from fiscal survival to national renewal, we must Budget not just for balance sheets, but for dignity. We must embrace a philosophy of people’s leadership—where every rupee spent builds trust, capability, and collective resilience. That is the true surplus we must seek.

(The author is a performance strategist, author, and educator committed to reshaping Sri Lanka’s leadership and governance culture. With decades of experience in banking, institutional reform, and strategic management, he now champions “people’s leadership”—a philosophy rooted in trust, dignity, and national renewal. He lectures at MBA level, serves on multiple boards, and writes extensively on economic transformation, ethical stewardship, and public accountability.)