📈 Mid-2026 Budget Execution Lagged by Weak Management: World Bank

Sri Lanka spent only 16.7% of its 2026 capital Budget and about 8% of the Rs. 500 Bn allocated for Cyclone Ditwah reconstruction by mid-year, according to the World Bank's latest report. The shortfall is attributed to weaknesses in project selection, procurement, and implementation capacity rather than financing constraints. Key Highlights & Fiscal Metrics: • Capital Budget Spending: Executed at 16.7% by mid-year. • Cyclone Ditwah Reconstruction: Only ~8% spent out of the Rs. 500 Bn allocation. • Relief Package: Less than half of the Rs. 100 Bn Middle East war relief package was disbursed. • Revenue Growth: Revenue surged 27.2% YoY in H1 2026, while total spending grew by 7.9%. • Primary Surplus: Reached Rs. 1.2 Tn, up by ~Rs. 360 Bn compared to H1 2025. • Overall Budget: Recorded a surplus of Rs. 9.5 Bn in H1 2026, compared to a deficit of Rs. 406 Bn in H1 2025. • Interest Burden: Interest payments, which absorbed 46% of revenue in 2025, are projected to drop to ~34% by 2028 (down from a peak near 80%). Economic Implications: • Under-spending has flattered fiscal accounts, but primary expenditure remains capped at 13% of GDP under the Public Financial Management Act. • The World Bank emphasized that boosting public investment impact requires better project screening and execution rather than higher spending limits. • Strong primary surpluses may allow the Government to use fiscal space to reduce regressivity in Sri Lanka's tax mix.