Sri Lanka has recorded an overall budget surplus of nearly Rs. 197 billion during the first five months of 2026, marking a significant turnaround from the deficit recorded during the corresponding period last year, according to Advocata Institute CEO Dhananath Fernando.

Explaining the latest fiscal data, Fernando stressed that the figure represents an overall budget surplus and should not be confused with the primary balance, which excludes interest payments on government debt.

“From January to May, revenue was higher than expenditure. We have recorded a budget surplus of approximately Rs. 197 billion,” Fernando said.

He noted that during the first five months of 2025, Sri Lanka had recorded a budget deficit of approximately Rs. 236 billion, making this year’s performance a significant reversal.

Fernando attributed much of the improvement to stronger government revenue collection, particularly tax revenue.

According to the figures cited by him, government revenue and grants increased by around 13.6% to approximately Rs. 2.54 trillion during the first five months of the year.

Tax revenue increased by around 23.9% compared with the corresponding period last year, while non-tax revenue also recorded a substantial percentage increase, although it represents a considerably smaller component of overall government revenue.

The Government’s primary balance has also strengthened significantly, Fernando said, noting that the primary surplus during the first five months of 2026 was around 50% higher than during the corresponding period of 2025.

Fernando said the stronger fiscal position provides the Treasury with greater flexibility and could reduce the need to borrow for certain expenditure and debt repayments.

However, he cautioned against assuming that the performance during the first five months would necessarily continue throughout 2026.

“There are another seven months to go,” he said, pointing out that interest and debt-servicing payments can vary considerably from month to month and could affect the overall fiscal balance later in the year.

Government expenditure has also increased, according to Fernando. Recurrent expenditure rose by around 5.5% to approximately Rs. 2.11 trillion, while capital expenditure and net lending increased significantly.

He said Sri Lanka’s improved revenue position has largely been supported by stronger tax collection and greater tax compliance, but warned that fiscal consolidation should not depend solely on imposing a heavier tax burden on the public.

Fernando argued that reducing unnecessary government expenditure should accompany efforts to increase revenue, noting that a budget deficit can be narrowed both by increasing income and controlling spending.

He also said the availability of additional fiscal space could allow the Government to increase capital expenditure on infrastructure and other development projects or provide a buffer against unexpected economic, geopolitical or natural-disaster-related shocks.

However, Fernando stressed that the additional funds available to the Treasury ultimately come largely from taxpayers and should therefore be spent in a manner that provides broader benefits to the public.

Describing the fiscal turnaround through a football analogy following the recent World Cup final, Fernando said the Treasury had also “scored a superb goal”, but cautioned that Sri Lanka’s fiscal performance must be assessed over the full year before firm conclusions are drawn. (Newswire)

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