Sri Lanka Fiscal Update: Primary Surplus Doubles, Deficit Nearly Eliminated 📈

Sri Lanka’s fiscal position strengthened significantly in January 2026, with the overall Budget deficit contracting by 96.8% YoY to just Rs. 3.81 Bn. • Fiscal Performance Overview: • Primary Surplus: Rs. 222.82 Bn (Up 86.7% YoY). • Budget Deficit: Rs. 3.81 Bn (Reduced from Rs. 119.4 Bn). • Revenue & Grants: Rs. 468.75 Bn (Up 35.3% YoY). • Expenditure: Rs. 472.56 Bn (Marginal 1.4% YoY increase). • Sector Breakdown: • Tax Revenue: Increased 35.1% to Rs. 434.23 Bn, driving the bulk of fiscal gains. • Non-Tax Revenue: Grew 37.5% to Rs. 34.52 Bn. • Recurrent Expenditure: Rose 1.2% to Rs. 429.41 Bn, reflecting tight control. • Economic Context: The surplus supports a Rs. 100 Bn relief package to mitigate global energy shocks. Progress aligns with IMF EFF requirements for a ~US$ 700 Mn disbursement, contingent on maintaining cost-reflective pricing in energy and utilities. • Outlook: While January data shows near-balanced books, Fitch Ratings warns of fragility due to the Middle East energy shock and post-Ditwah reconstruction costs. Continued fiscal discipline and revenue mobilization remain critical to sustaining these gains throughout 2026.