The Hon. Anura Kumara Dissanayake - President, Minister of Defence, Minister of Finance, Planning and Economic Development and Minister of Digital Economy

¶ 01 Hon. Speaker, I move that “the Bill be now read a Second time.”

¶ 02 1. Preamble

¶ 03 Hon. Speaker, it is a great pleasure to present to this august House our second National Budget. Within a short period of one year since the historic popular mandate given to us by the people of Sri Lanka, we have, with a clear vision, taken decisive steps to meet their expectations. The public expected a clear departure from the entrenched cronyism and the associated corrupt political culture. We can be proud of the substantial steps we have taken to safeguard that trust. We have launched an uninterrupted effort to overhaul the economy and political structures, to build a people-centric public administration, to affirm the rule of law and order, to strengthen governance, and to carry the gains of the economy to the grassroots.

¶ 04 Hon. Speaker, when we took on this challenge, the country’s economic foundation was in collapse. Everyone knows it from lived experience. The prolonged macroeconomic instability arising from fiscal imbalances, structural inefficiencies, and governance weaknesses had placed the entire economy under severe risk, imposing immense hardship on our people. The hopes of the people, who were in no way responsible for the crisis, were shattered. Therefore, from the moment we received our mandate, we embarked on broad-based reforms to stabilize the macroeconomy, ensure fiscal discipline, strengthen state institutions, enhance transparency while stamping out corruption, and re‑establish accountability to the people. As a result, within just one year, we have been able to re‑establish fiscal, macroeconomic, and social stability. There is no longer any room to doubt macroeconomic stabilization. It has been achieved and will be sustained.

¶ 05 Driven by robust growth across all sectors, the economy expanded by 4.8% in the first half of 2025, exceeding the projections of many multilateral institutions. Inflation has now returned to positive but low levels. Some have attempted to misinterpret movement from negative to low positive inflation as a sign of crisis. We strive to keep inflation under 5%. We have restored price stability. Treasury bill yields have fallen to 8.3% from a peak of around 33%, stabilizing the financial sector. The exchange rate too has stabilized. Even amid global volatility, the external sector, including trade, has strengthened.

¶ 06 Many anticipated that geopolitical tensions—between India and Pakistan, later Iran and Israel, or changes in US tariff policy—would topple our economy. Yet the exchange rate has held firm and our reserves have strengthened despite global tremors. With rising exports, tourism, and remittances, gross official reserves have exceeded USD 6 billion and we expect to reach about USD 7.9 billion by year-end. After nearly two decades, tax revenue as a share of GDP is projected to reach about 16% this year, up from a low of 8.5% under your administrations.

¶ 07 We also expect to record the highest-ever primary surplus, exceeding the 2.3% of GDP target this year. These outcomes have strengthened our international relationships and rebuilt investor confidence. The initial pathway out of crisis has been anchored on fiscal discipline together with transparent, accountable public financial management.

¶ 08 We strengthened domestic revenue mobilization, digitized revenue administration, rationalized public expenditure, and recorded a higher primary surplus. Sustaining primary surpluses is driving down central government debt from 114.2% of GDP in 2022 to an estimated 96.8% by end‑2026, with a target of about 87% by 2030. This opens the path to exit the debt crisis that has burdened our citizens for years.

¶ 09 The economy’s adverse dynamics escalated through 2020, spreading like dominoes across all sectors, culminating in the sovereign default announced in April 2022. The Supreme Court has already affirmed who bears responsibility for that default. Such a default typically costs a lost decade to regain pre‑crisis levels. Many predicted a return to 2019 conditions only by 2029. However, by end‑2025 we expect to restore pre‑crisis economic conditions.

¶ 10 Our debt restructuring is largely complete. Sri Lanka is on a sustainable fiscal path and both domestic and external confidence has improved. Reflecting this progress, Fitch, Moody’s, and S&P have upgraded Sri Lanka’s sovereign ratings to CCC+, Caa1, and B- respectively. We also aim to complete the restructuring of USD 210 million of SriLankan Airlines’ debt (originally USD 175 million) before December, which should further support ratings.

¶ 11 With the support of the IMF Extended Fund Facility and other development partners, we are implementing necessary economic reforms and meeting program targets and structural benchmarks, yielding tangible macro benefits. We have made strong progress in restoring stability, strengthening public finance, and rebuilding fiscal and external buffers.

¶ 12 Social protection and human capital development are central to our policy. We are expanding and retargeting the Aswasuma program to deliver support to genuinely eligible low‑income families, and we will review beneficiary lists in 2026 to ensure accuracy. Historically, successive governments politicized social protection—changing names, adding and removing beneficiaries for canvassing. We are ending that. We have also increased allowances for the elderly and kidney patients; enhanced Mahapola scholarships and grants; and provided grants for schoolbooks and supplies to Aswasuma beneficiary children—to ensure the gains of growth reach those with real needs.

¶ 13 We are reforming and modernizing the public sector to deliver higher quality, efficient services. We have already implemented a three‑phase public sector wage increase, are filling critical vacancies, advancing digitization, and reorganizing the SOE sector to build a capable and citizen‑oriented service.

¶ 14 We are accelerating governance reforms and anti‑corruption measures to enhance transparency, accountability, and public trust. Through new laws on PPPs, SOEs, state assets management, and procurement we are replacing outdated systems with a modern legal framework. Our digital approach to public finance is operational across many areas. By strengthening the Integrated Treasury Management Information System and introducing e‑procurement, we will further improve efficiency and reduce space for fraud and corruption. A key feature of e‑procurement is removing face‑to‑face interactions between bidders and procuring entities.

¶ 15 Corruption is a tax on the poor and a shackle on development. Our reforms are not just for efficiency but also instruments of social justice. Reducing corruption boosts growth. We have strengthened transparency in asset declaration and secured the budgetary and staffing independence of the Commission to Investigate Allegations of Bribery or Corruption, placing it under parliamentary oversight.

¶ 16 By March 2026 we will introduce a digital asset declaration system. We will appoint an expert committee to introduce a Code of Conduct for Judicial Officers in 2026. We have also removed unnecessary privileges enjoyed by politicians and senior officials, working to build a new society based on fairness and equality.

¶ 17 Our anti‑corruption drive is creating an investor‑friendly climate. FDI has risen from USD 737 million in 2023 to USD 614 million already in 2024, and by September reached USD 823 million. We have approved USD 1.3 billion worth of Port City projects. We are strengthening the regulatory framework to ensure investment protection and ease of doing business. We have ended ad‑hoc tax holidays granted to cronies. Going forward, tax incentives will follow transparent, rules‑based criteria through amendments to the Strategic Development Projects Act and the Port City Act. The Ministry of Finance will biannually publish on its website all granted tax exemptions. We have abolished SVAT, reinstating a transparent and efficient VAT refund system, strengthening tax administration.

¶ 18 We will introduce a State Commercial Business Management Law in early 2026 to improve SOE performance—clarifying mandates, requiring annual audited financial statements, and limiting borrowings to prudent purposes. We have also amended the National Audit Act to enable penalties for officials who fail their fiduciary duties over state assets. A special task force will review state land management and use. We plan to present a State Asset Management Bill in 2026 to enhance transparency and governance in state asset oversight and disposal. Cost‑reflective energy pricing will continue, with targeted subsidies provided through the Treasury rather than loading losses onto SOEs.

¶ 19 We are dismantling the institutional networks that enable financial crimes. By March 2026, we will introduce a Beneficial Ownership Register to strengthen AML/CFT. A dedicated police unit under a DIG has been established to enforce the Proceeds of Crime law. Let me be clear: the law will be applied without fear or favour against anyone who has defrauded the public.

¶ 20 We are committed to building a safe, secure, and just society. Our children must be freed from drugs and organized crime. We are disrupting supply chains, weakening demand networks, investing in education and rehabilitation, and expanding job opportunities through a multi‑pronged plan.

¶ 21 We thank our bilateral and multilateral partners and the Central Bank of Sri Lanka for their support. These partnerships have been a pillar of a stable and prosperous Sri Lanka, which we aim to strengthen.

¶ 22 This second Budget consolidates the foundation laid in our first, to accelerate growth towards a prosperous country and better lives. We seek the cooperation of all stakeholders to move forward overcoming challenges.

¶ 23 2. Strategic Objectives of Budget 2026

¶ 24 2.1 Broad‑based, sustainable growth

¶ 25 Our primary objective is to achieve growth exceeding 7% over the next few years, ensuring benefits are fairly shared across regions and social groups. A people‑participatory economy, productivity gains, innovation, private sector‑led investment and growth, transparent and rules‑based FDI attraction, export and value‑addition integration into global value chains, PPPs, and SOE reforms will drive this. Strategic infrastructure must be delivered efficiently, transparently, and accountably.

¶ 26 2.2 Export diversification for higher income

¶ 27 Under the National Export Development Plan (2025–2029), we are diversifying exports, enhancing competitiveness, integrating into global value chains, and accessing new markets. A special committee is reviewing existing trade agreements and pursuing new FTAs. We will introduce a new tariff policy, facilitate finance for new export products and services, and establish a National Single Window for trade.

¶ 28 As growth accelerates to 7%, import demand for inputs and equipment will initially rise, creating temporary pressure on the dollar. For example, imports rose from USD 1,646 million (Sep 2024) to USD 2,049 million (Sep 2025), an increase of USD 403 million. We have a plan to navigate this phase by converting imported inputs into exports to recoup foreign exchange.

¶ 29 2.3 Ensuring debt sustainability

¶ 30 The IMF identified Sri Lanka’s debt as unsustainable in 2022 due to imprudent borrowing for non‑priority projects, failure to generate productive assets, delays in completion, and lack of a rules‑based debt management framework. We are implementing a clear strategy via the Public Debt Management Office. With restructuring near completion and stability restored, market confidence has improved, and ratings have been upgraded. Our medium‑term goals include keeping the gross financing need below 13% of GDP and annual central government external debt service below 4.5% of GDP, allowing the debt‑to‑GDP ratio to decline.

¶ 31 We are already nearing the 2028 commitment to reduce debt to about 95% of GDP and can keep it below 90% by 2032. Concerns that Sri Lanka cannot meet obligations in 2028 are unfounded. In 2024 we paid USD 1,674 million in external debt service; in 2025 the requirement is USD 2,435 million, of which USD 1,948 million has been paid by 30 September, with USD 487 million due by 31 December—an increase of USD 761 million over 2024. In 2028, external debt service is about USD 3,259 million, only USD 824 million more than 2025. Given increased foreign earnings (USD 21,272 million Jan–Sep 2025 vs USD 19,338 million in 2024) and one‑off import pressures from reopening the vehicle market (USD 1,373 million in imports and USD 1,933 million LCs opened by 30 Oct), we can manage 2028 obligations.

¶ 32 Part of the restructured ISBs are Governance‑Linked Bonds maturing in 2034 and 2035. If we achieve revenue targets (government revenue over 15.3% of GDP in 2026 and 15.4% in 2027) and publish the Fiscal Policy Statement on time, creditors will grant a 0.75 percentage point annual interest reduction for 2028–2035, saving about USD 80 million per year. We will meet these targets; 2025 revenue will be about 16% of GDP, enabling us to exceed 15.3% and 15.4% in 2026 and 2027.

¶ 33 2.4 Strengthening a production economy

¶ 34 We will reduce import dependence by supporting SMEs with targeted assistance, technology, and market access, and mobilize private sector participation in large‑scale production and value addition, including infrastructure and skills through PPPs.

¶ 35 2.5 Ending rural poverty

¶ 36 We will empower villages—the smallest unit—to become prosperous, carrying national growth to rural areas through a modern, sustainable, inclusive development program: expanding economic opportunities, infrastructure, production, planned urbanization, education and health, and SDG‑aligned poverty eradication. Strong social protection will shield vulnerable and transitorily poor groups.

¶ 37 2.6 Advancing digitization

¶ 38 We target a USD 15 billion digital economy, leveraging e‑governance to deliver transparent, efficient services. This Budget provides the financial, legal, and institutional support for robust digital infrastructure.

¶ 39 3. Medium‑term macro direction

¶ 40 We will maintain stability, strong governance, and revenue‑anchored fiscal consolidation to deliver sustainable, inclusive growth exceeding 7% in the medium term. Public investment will rise from 2.7% of GDP (2024) to 4% in 2025 and 2026, but achieving 7% growth requires increasing the share of capital expenditure by reducing recurrent outlays and pushing public investment above 4% over time.

¶ 41 Recent performance (first nine months 2025 vs 2024 first nine months) shows: - GDP growth rose from 4.6% (H1 2024) to 4.8% (H1 2025). - Unemployment fell from 4.5% (Q1 2024) to 3.8% (Q1 2025). - Merchandise exports rose from USD 8.5 bn to USD 9.1 bn. - Worker remittances rose from USD 4.8 bn to USD 5.8 bn. - Tourism earnings rose from USD 2.3 bn to USD 2.5 bn. - Government revenue and grants grew from LKR 2.9 tn to LKR 3.8 tn (an increase of LKR 900 bn). - The primary balance (first nine months) improved from LKR 0.8 tn to LKR 1.5 tn; we are on track to achieve a LKR 2.3 tn full‑year primary surplus (we needed LKR 750 bn by September; we secured LKR 1,500 bn).

¶ 42 Capital market performance (Sep 2025 vs Sep 2024): - All‑Share Index rose from 11,855 to 21,779, with intraday highs over 23,000 (a record). - S&P SL20 rose from 3,453 to 6,127. - Market capitalization increased from LKR 4.4 tn to LKR 7.8 tn. - Foreign purchases rose from LKR 37 bn to LKR 47 bn.

¶ 43 We have ended fiscal indiscipline and established a prudent, rules‑based framework that constrains debt, spending, and ensures adequate capital outlays, empowering citizens to seek redress when rulers break the rules—this is true system change. We project government revenue exceeding 15.3% of GDP in 2026, with RAMIS 3.0 modernization at Inland Revenue, and aim to lift revenue to 20% of GDP in the long term, shifting the direct:indirect tax mix from 25:75 to 40:60.

¶ 44 We will maintain primary expenditure within 13% of GDP, strengthen social protection for the vulnerable, and keep public investment at a minimum of 4% of GDP.

¶ 45 Our fiscal strategy replaces instability with predictability, patronage with fairness, and short‑term gains with long‑term prosperity.

¶ 46 4. Private‑sector and investment‑led growth

¶ 47 4.1 Creating an investor‑friendly environment

¶ 48 We are replacing ad‑hoc, discretionary practices with a rules‑based, predictable, partnership‑oriented framework: - Amendments to the Strategic Development Projects Act and the Colombo Port City Economic Commission Act will systematize FDI processes, enhance transparency in incentives, and align with investor expectations. We expect these to significantly raise FDI inflows in early 2026. - A PPP Bill has been published for public comment and will be brought to Parliament in early 2026, providing a transparent legal framework for private participation in infrastructure. - An Investment Protection Bill will be presented in early 2026 to ensure legal safeguards for investors.

¶ 49 We will develop service zones affiliated with existing investment zones to improve efficiency, spread benefits regionally, integrate SMEs into value chains, and support labour mobility. LKR 2,000 million has been allocated, with an additional LKR 1,000 million proposed.

¶ 50 Two long‑neglected technology parks in Kurunegala and Galle—built at large cost with bank loans but left idle—will be revived by settling LKR 1,500 million in outstanding obligations this year and opening them for private investment. Two more parks at Dambulla and Nuwara Eliya are planned under the BOI.

¶ 51 We will introduce a residency visa scheme for foreign investors meeting defined thresholds in priority or qualifying projects.

¶ 52 The BOI approval process will be run through a digital Single Window. LKR 100 million is allocated to operationalize it.

¶ 53 We will improve land use policy, streamlining release of land for investment, integrating land data into a central digital system (LKR 100 million allocated), and establishing a new legal framework to determine land valuation based on project nature and national priorities. We must align land use with the modern economy—opening land for data centres, green hydrogen, and other frontier sectors—using differentiated valuations where appropriate.

¶ 54 We will establish a government holding company to manage state‑owned commercial businesses to enhance accountability, transparency, governance, and profitability; the Bill will be presented in Q1 2026.

¶ 55 The EDB, with public‑private stakeholders and ADB support, is preparing a National Export Development Plan; an additional LKR 250 million is allocated under the National Export Branding Programme to implement key actions.

¶ 56 A ministerial expert committee is reviewing existing trade agreements and identifying candidates for new FTAs. We will support export‑oriented firms—especially SMEs and emerging services—to participate in international fairs, obtain product certifications, adopt digital marketing, and meet global buyer standards, allocating an extra LKR 250 million to the EDB.

¶ 57 We will upgrade trade facilitation through a National Trade Single Window (LKR 2,500 million allocated), customs modernization, regulatory streamlining, lower transaction costs, and better global connectivity for businesses.

¶ 58 4.2 An integrated framework to strengthen SMEs

¶ 59 We will consolidate overlapping SME institutions by integrating IDB, NEDA, and SMED functions under the IDB. We will add LKR 1,000 million to the LKR 4,000 million already allocated for industrial estates.

¶ 60 The Ministry of Industries is also progressing to merge LakSala, the National Crafts Council, and the Model Design Centre to reduce duplication and costs and improve performance.

¶ 61 Given SMEs contribute over 52% of GDP and nearly half of employment, we are expanding access to finance: - The National Credit Guarantee Institution is operational; unsecured lending guarantees exceeded LKR 4,027 million in 2025. We plan guarantees enabling about LKR 7,000 million in unsecured loans in 2026, supported by an ADB USD 50 million line. - We have allocated LKR 25,000 million for concessional loans: up to LKR 25 million for viable enterprises and up to LKR 15 million for distressed ones; and LKR 5,900 million for loans up to LKR 50 million. - Agriculture value chain financing: LKR 1,700 million for a new rural credit scheme offering up to LKR 3 million with a 5% interest subsidy; LKR 7,700 million for a new SME loan program with concessional loans up to LKR 50 million; LKR 6,200 million for agri value chain loans up to LKR 50 million; and LKR 15,000 million for concessional loans to small and medium retail owners up to LKR 50 million. - We will establish a Sustainable Farmers’ Credit Fund with LKR 800 million to scale agri projects. - Additional allocations cover youth enterprise credit, microfinance, and women’s entrepreneurship finance.

¶ 62 In total, LKR 80,000 million in concessional credit facilities will be available in 2026 for start‑up, working capital, equity support, guarantees, and interest subsidies.

¶ 63 To spur new investment by SMEs, we will lower the enhanced capital allowance threshold for eligibility from USD 3 million to USD 250,000, recognizing that the earlier threshold excluded genuine SMEs.

¶ 64 5. Promoting tourism

¶ 65 We target USD 8 billion in earnings and 4 million arrivals by 2030. We will restructure four key tourism institutions to resolve coordination failures, raise efficiency, and ensure continuous investment in infrastructure, human capital, and integrated marketing.

¶ 66 We will implement a destination development program highlighting nature and heritage, allocating LKR 3,500 million from the Sri Lanka Tourism Development Authority to develop coastal and aquatic environments such as Hamilton Canal and Negombo Lagoon.

¶ 67 We will develop Haputale, Beragala, and Idalgashinna as a premier destination through infrastructure and promotion. Over 900 underutilized state‑owned rest houses and holiday bungalows in prime locations will be converted into revenue‑generating units with private sector participation while safeguarding staff entitlements and improving facilities.

¶ 68 By 2030 the hospitality sector will need over 800,000 skilled workers. SLITHM alone cannot meet this. Therefore, SLITHM, with TVEC‑recognized public and private training institutes, will roll out a short‑term national Hospitality Multitask Programme. LKR 500 million from the Tourism Promotion Fund will support this.

¶ 69 We will develop Beira Lake into a signature urban attraction, improving social, economic, environmental, and tourism uses, with LKR 2,500 million from the Tourism Promotion Fund.

¶ 70 Domestic air travel is critical. Government will invest initially in domestic airports because private investors will only follow once airline operations scale. We aim to complete Hingurakgoda Airport development in 2026 and allocate LKR 1,000 million to develop Sigiriya and Trincomalee domestic airports and expand operations at Jaffna International Airport, with Civil Aviation Authority support for additional funding.

¶ 71 Sri Lanka can become a leading international transit hub due to our strategic location. We will restart the Bandaranaike International Airport expansion in Q1 next year and complete SriLankan Airlines’ debt restructuring. While a national carrier is important, its burden on the public must be reasonable. The Board has presented a robust plan; we will monitor performance and take necessary decisions if targets are not met.

¶ 72 6. Reforms and digitalization

¶ 73 A digital economy is pivotal for inclusive growth and global competitiveness. In 2026, with over LKR 25,500 million in public investment, Sri Lanka can secure a significant part of this transformation.

¶ 74 Completed or advanced projects include expanding GovPay for public payments, establishing the National Cyber Security Operations Centre, digitizing services of the President’s Fund and Diplomatic Missions, and establishing GovTech. The Digital Economy Authority and 5G spectrum awards will be key next steps. We are expanding broadband access and attracting FDI to foster an innovation‑friendly environment.

¶ 75 We allocate LKR 3,000 million for next‑generation digital infrastructure: AI, cloud computing, and data centres.

¶ 76 We have passed the Personal Data Protection Act (as amended) to operationalize the Data Protection Authority. A forthcoming Digital Economy Bill will establish the Digital Economy Authority, a Cabinet Subcommittee on the Digital Economy, and a Digital Economy Council.

¶ 77 We will roll out SLUDI (the unified digital ID), the National Data Exchange, enhance Government Cloud, and build a single‑roof digital interface for government services. A public awareness program on SLUDI will commence in early 2026; first digital IDs will be issued in Q3 2026. The system design ensures software development and integration support by external vendors ends before live data entry and operations, which will be managed by a Sri Lankan entity, safeguarding data sovereignty. The Supreme Court has dismissed attempts to block this transformation. We must proceed to enable secure participation in the virtual economy.

¶ 78 We are promoting a less‑cash society via digital payments. In Q1 2025, over LKR 2,000 billion of government payments were processed via LankaPay. All government payments will shift to online modes; as an incentive, service fees will be waived for payments to public institutions. LKR 1,000 million is allocated for fee absorption, system upgrades, and awareness, plus LKR 500 million for further facilitation.

¶ 79 From 1 January 2026, all service charges on electronic payments to government institutions will be removed. QR payments below LKR 5,000 will be free of charges through the Digital Economy Ministry vote.

¶ 80 Sri Lanka can be a regional hub for data centres. We will strengthen laws on data security, privacy, and digital governance to build investor confidence, and offer incentives such as fiscal support, green power concessions, lower initial electricity tariffs, and facilitated land for data centres. An initial LKR 500 million is allocated. Where appropriate, land valuation and tariff concessions will be tailored to these strategic investments.

¶ 81 We will support R&D and innovation through PPPs and medium‑term public funding. LKR 750 million is allocated for selected AI projects, overseas training scholarships, local language datasets, and providing AI and cloud resources to universities and schools.

¶ 82 To broaden access, we will issue broadband vouchers to Aswasuma beneficiaries and other low‑income students for education‑related connectivity, with appropriate site and/or time limits to ensure productive use, enabling meaningful participation in online education and the digital economy.

¶ 83 To accelerate network rollout, we will establish a simplified, time‑bound approval process for telecom towers, and suspend applicable levies on newly constructed towers for five years. The TRC planned 100 towers in 2025 but only 30 were built due to delays; we will ensure 100 new towers next year with five‑year tax relief for investors.

¶ 84 We will establish an “Agni Fund” with an initial LKR 1,500 million under the Digital Economy Ministry to catalyze the start‑up ecosystem, expecting private co‑investment.

¶ 85 We will establish a Virtual Special Economic Zone under the BOI to enable export and job‑creating digital businesses to operate practically within Sri Lanka without conventional physical constraints.

¶ 86 7. Strengthening research and development

¶ 87 Hon. Speaker, the National Policy on State Research and Development has been finalized to identify priorities aligned with government development processes, allocate resources appropriately, and implement a national pipeline that carries research through to commercialization. We produce significant research, but lack capitalization for commercialization. Therefore, we will establish a centralized administrative body to oversee the end‑to‑end process— the National Research, Development and ... (continues).