Sri Lanka targets growth beyond crisis recovery in budget, on course for IMF exit

President Anura Kumara Dissanayake unveiled a budget on Thursday aimed at shifting Sri Lanka's economy from recovery to growth, saying the country had liquidity to meet debt repayments and expected to successfully complete its IMF programme ‌in March. Sri Lanka has experienced a turnaround since an unprecedented financial crisis, triggered by a severe dollar shortage four years ago.

Growth is forecast at 4.4% this year, according to the World Bank, while foreign exchange reserves have been rebuilt to $6.9 billion. Investor confidence has also improved, with Fitch Ratings upgrading Sri Lanka to B-minus from CCC-plus in September. The budget seeks to anchor Sri Lanka's exit from ‌the $2.9-billion International Monetary Fund programme in March, sustain growth at a time of high energy prices, contain inflation - which rose to 8.3% in October from 2.2% in March - and pave the ‌way for a return to bond markets.

"The main objective of this Budget is to move from economic stability towards transformation," Dissanayake said, outlining the growth, public revenue and primary surplus numbers from the last two years. "It is to achieve a progressive transformation in every sphere, including investment, exports, productive employment, social welfare and sustainability."

Sri Lanka has sufficient liquidity to repay $2.9 billion of total debt in 2027 and $3.5 billion in 2028, he said, adding that the government estimates ⁠it will ​reduce its debt-to-GDP ratio to 87% by 2032 under ⁠the IMF programme. For 2026, Sri Lanka's debt-to-GDP ratio is projected at 92.9%, down from 114.2% in 2022.

The government expects revenue to be 15.8% of GDP while the expenditure target is 20.3% of GDP for next year. The ⁠budget deficit will be 4.5% of GDP. Tax revenue is expected to be 14.6% of GDP and interest payments will be 6.8% of GDP, data released with the budget document showed. DISSANAYAKE FLAGS HIGH FUEL BILL

Sri ​Lanka will not move away from its medium-term revenue strategy, which outlines policies from 2027 to 2031 to keep the primary surplus at 2.3%, total revenue at about ⁠15.5% of GDP and tax revenue at 14.2% of GDP, Dissanayake told lawmakers. The government's fiscal strategy targets a 2.3% surplus in 2027, which is in alignment with the IMF programme.

The impact of the US war on Iran has ⁠led ​Sri Lanka to spend $4.4 billion on fuel purchases in the first nine months of this year, which was the full amount it spent for all of 2025, Dissanayake said, outlining plans to expand the country's only refinery to 100,000 barrels, expand fuel storage and build new pipelines to improve fuel supply. The budget also aims to bolster confidence among rating agencies as ⁠Sri Lanka seeks an upgrade ahead of its return to international bond markets and the resumption of foreign debt repayments in 2028, analysts said.

The country is likely to receive $345 million ⁠from the IMF in the coming weeks as ⁠the budget is broadly aligned with the framework set out by the global lender, analysts added. "As much as Rs.2 trillion have been set aside for capital expenditure but implementation will be key for growth. Hopefully, they will spend at least half that," said Dimantha Mathew, chief research ‌and strategy officer at ‌First Capital.