1H Budget swings to surplus; debt at 88.8% of GDP

President and Finance Minister Anura Kumara Dissanayake

• Revenue up 27% to Rs. 2.95 t on vehicle imports and VAT; primary surplus far exceeds IMF target
• Capex reaches only 16% of annual estimate; interest bill falls 2.4%
• Debt stock at Rs. 32 t; 82% of 1H borrowing raised domestically
• 93% of bilateral restructuring deals concluded; no external payment arrears

The Government’s Budget swung to a surplus of Rs. 9.5 billion in the first half of 2026 from a deficit of Rs. 405.6 billion a year earlier, as a surge in revenue and lower execution of capital expenditure outpaced spending growth, while Government debt stood at Rs. 32 trillion, or 88.8% of estimated GDP.

This is according to the Finance, Planning and Economic Development’s Mid-Year Fiscal Position Report released yesterday under the Public Financial Management Act. It showed the primary surplus, which excludes interest payments, rising to Rs. 1.24 trillion from Rs. 859 billion, far above the end-June target of Rs. 72 billion under the IMF Extended Fund Facility (EFF).

1H...

Total revenue rose 27.2% to Rs. 2.95 trillion, or 56.1% of the annual estimate. Tax revenue grew 25.9% to Rs. 2.71 trillion, driven largely by a 255.7% jump in vehicle imports to 313,480 units, which more than doubled Excise Duty on motor vehicles to Rs. 266.4 billion and lifted Customs Import Duty by 63.6% to Rs. 153.7 billion.

 VAT rose 25.4% to Rs. 987.6 billion and income tax 16.3% to Rs. 568.4 billion. 

“Sri Lanka Customs and the Inland Revenue Department were the main contributors to the increase in tax revenue, reflecting stronger collections from both import-related and domestic taxes,” the report said. The direct to indirect tax ratio, however, shifted to 21:79 from 23:77.

Expenditure grew a slower 7.9% to Rs. 2.95 trillion. Interest payments fell 2.4% to Rs. 1.23 trillion, while salaries rose 12% to Rs. 621.7 billion on public sector pay revisions and welfare spending reached Rs. 550.8 billion. 

Capital expenditure and net lending rose 23.6% to Rs. 276.6 billion but amounted to only 16.1% of the annual estimate of Rs. 1.72 trillion. “This outcome may be attributed to the phased implementation of development projects and the prioritization of public investment expenditure,” the Ministry said of lower-than-estimated capital payments.

Of the total debt stock at end-June, external debt amounted to $ 38 billion, comprising multilateral (39%), commercial (33%) and bilateral (28%) debt, while domestic debt stood at Rs. 19.2 trillion, 84% of it in Treasury Bonds. About 82% of borrowing in the first half was raised domestically, mainly through Treasury Bonds, while net Treasury Bill issuance was negative at Rs. 720.9 billion. “The reduction in Treasury Bill issuance also indicates a shift away from short-term financing,” the report said.

Debt service, excluding Treasury Bill maturities, totalled Rs. 2.32 trillion, of which Rs. 1.2 trillion was interest. External debt service amounted to $ 1.25 billion, and there were no external payment arrears at end-June.

Agreements covering 93% of the bilateral debt to be restructured had been concluded by 30 June, with the remainder expected by end-2026, while talks with creditors from 13 countries are ongoing. “Following the successful finalization of loan agreements, Sri Lanka has resumed regular debt servicing to the respective creditor partners,” the Ministry said.

Outstanding Treasury guarantees and letters of comfort stood at Rs. 971.2 billion at end-March, 51.3% of them in foreign currency.