2026: Primary expenditure balance limit to exceed 13% of GDP

• Cyclone Ditwah to push budget past IMF expenditure limit
• Rs. 500 b recovery spend to exceed key fiscal target by over 1% of GDP

Sri Lanka’s primary expenditure balance limit of 13% of GDP is likely to be exceeded by 1-1.4% next year owing to the supplementary estimate of Rs. 500 billion, which is to be allocated to reconstruction and recovery post-cyclone Ditwah, Deputy Minister of Finance and Planning Anil Jayantha Fernando said at a press conference held yesterday (17).

“Primary expenditure [balance] will now, with this Rs. 500 billion, be 14%, basically under the Public Finance Management Act it should be 13%. So roughly, we can work it out. It would be 14.4%,” Fernando said.   

Sri Lanka is meant to adhere to the primary expenditure limit of 13% of GDP, as part of the International Monetary Fund’s Extended Fund Facility (EFF). This target is reiterated in the Public Financial Management Act, No. 44 of 2024, Section 15(1). The clause maintains that Sri Lanka must limit annual Government expenditure, excluding interest payments on debt within 13% of GDP, regardless of revenue levels.

However, if required, the Government is capable of exceeding the limit, as stated in the PFMA’s Section 14, 2 and 2(a). The Minister stated that the Rs. 500 billion sum was based on a supplementary estimate for the means of reconstruction and recovery, which is to be presented to the Parliament today (18).

Fernando further addressed the $ 6-7 billion cost of damage estimate that has been circulating in the media, and stated that it is yet to be confirmed with findings of the World Bank. 

He said: “This wasn’t a confirmed figure and the estimates that we are making can very likely change,” noting that the estimate has the likelihood of exceeding the expectations.

Sri Lanka saw a primary surplus of Rs. 859 billion recorded in the first half of 2025, compared with a primary surplus of Rs. 543.4 billion in 2024, according to data released by the Ministry of Finance, Planning and Economic Development’s Mid-year Fiscal Position Report released in October. 

It attributed this surplus to the increase in revenue and lower execution of capital expenditure. At the same time, government spending rose by 10.9% to Rs.2,730.7 billion in the first half of 2025, with nearly 91.8% of expenditure being routine, non-investment expenditure. The increase was attributed to higher interest payments on debt, which alone consumed half of government revenue.

Earlier this year, the Sri Lankan Government expected to meet the target of a primary balance expenditure limit of 13% of GDP for 2026, with a forecast of 12.9%. This was on par with its goal of lowering state debt below 95% of GDP by 2032.

Source: The morning