End July Budget deficit down 36% YoY

President and Finance Minister Anura Kumara Disanayake

• Govt. deficit in seven months to end-July 2025 at Rs. 556 b, down from Rs. 872.6 b a year ago
• Full-year Budget deficit estimated at Rs. 2.2 t
• Total expenditure up 8.5% YoY to Rs. 3.2 t, revenue up 26.6% YoY to Rs. 2.7 t
• IRD achieves 53% of Rs. 2.2 b full-year target, Customs 57% of Rs. 2.1 t and Excise 52% of Rs. 839 b full-year targets
• Excise duty on motor vehicle imports surges 528% to Rs. 193 b in seven months to end-July 2025

Giving investors a strong signal on the economic recovery and future stability, the Government continues to report impressive gains in fiscal performance, with the Budget deficit in nominal terms falling by 36.3% to Rs. 556.1 billion in the first seven months of 2025, down from Rs. 872.6 billion in the same period of 2024.

According to the latest Fiscal Review Report January-July 2025, released by the Finance Ministry Fiscal Policy Department, the declining Budget deficit is mainly due to revenue growth outpacing expenditure.

The Budget deficit target for the full year 2025 is Rs. 2.2 trillion.

Government expenditure in the seven-month period increased to Rs. 3.29 trillion, up 8.5% from Rs. 3 trillion a year ago, with the full-year estimate for 2025 at 

Rs. 7.2 trillion.

The primary deficit had increased to Rs. 973.6 billion in the first seven months of 2025, up from Rs. 519.4 billion a year ago. 

During this period, tax revenue increased 28.2%, and non-tax revenue increased 9% and recurrent expenditure, including public sector wages, interest payments, and transfers, increased 12.3%. Capital expenditure and net lending declined 19.7%. Total revenue increased 26.6% to Rs. 2.7 trillion in the first seven months of 2025 from Rs. 2.15 trillion a year ago, with the full-year collection estimated at Rs. 5 trillion, the Finance Ministry said.

Revenue from income taxes increased 8.3% to Rs. 525 billion, and VAT collection rose 27.5% to Rs. 935 billion.

The Finance Ministry said that the Inland Revenue Department (IRD) had achieved 53% of its full-year target of Rs. 2.2 trillion during the first seven months of the year, while Customs had achieved 57% of its full-year Rs. 2.1 trillion target, and the Excise Department achieved 52% of its Rs. 839 billion full-year target.

Meanwhile, revenue from Excise duty on motor vehicles surged 528% to Rs. 193 billion in the first seven months of 2025, up from Rs. 31 billion a year earlier, while tobacco tax collections fell 21.5% from a year ago to Rs. 54 billion. Excise duty on petroleum imports marginally decreased by 0.5% to Rs. 117 billion, but duty from liquor increased by 10% to Rs. 127 billion.

Government spending was growing at a slower pace than revenue.

Total Government expenditure increased 8.5% to Rs. 3.3 trillion in the first seven months of 2025, compared to Rs. 3 trillion a year ago, with recurrent expenditure, including State-sector wages, interest payments, and direct transfers and subsidies, increasing 12% from a year ago to Rs. 3 trillion. Total interest payment increased by 10% to Rs. 1.5 trillion in the first seven months of 2025 compared to Rs. 1.39 billion a year ago.

However, capital expenditure and net lending fell 20% from a year ago to Rs. 290 billion in the first seven months of 2025, indicating a persisting challenge around funding economic and social infrastructure projects necessary for long-term growth, with the country locked out of international capital markets for defaulting on its debts.