The Government had spent only 16.7% of its 2026 capital Budget and about 8% of the Rs. 500 billion allocated for Cyclone Ditwah reconstruction by mid-year, the World Bank said yesterday. It attributed the shortfall to weak public investment management rather than a lack of funds.<\/p>\n\n\n\n
In its Sri Lanka Development Update, the Bank said the under-execution reflects weaknesses in project selection, procurement and implementation capacity, rather than financing constraints. A similar pattern was evident in other crisis spending, with less than half of the Rs. 100 billion Middle East war relief package disbursed by mid-year.
The shortfall has flattered the fiscal accounts. Revenue rose 27.2% year-on-year in the first half, while spending grew only 7.9%. The primary surplus, which excludes interest payments, reached Rs. 1.2 trillion, about Rs. 360 billion higher than a year earlier. The overall budget recorded a surplus of Rs. 9.5 billion, against a deficit of Rs. 406 billion in the first half of 2025.
The Bank said improving the quality of spending matters more than raising its level, because the Government cannot simply spend more. The fiscal space created by lower interest costs and stronger revenue cannot be channelled into higher primary spending without breaching the 13%-of-GDP primary expenditure ceiling under the Public Financial Management Act.
With the spending envelope essentially fixed, the Bank said better project selection, procurement and execution are the main means of increasing the growth impact of public spending. It called for a more systematic approach to project screening, risk filtering, prioritisation and appraisal to reduce cost and time overruns.
The Bank expects public spending to remain muted, with primary surpluses of at least 3.5% of GDP over the medium term. That is well above the 2.6% targeted from 2027 in the Government\u2019s Fiscal Strategy Statement. Interest payments, which absorbed 46% of revenue in 2025, are projected to fall to about 34% by 2028, down from a crisis peak of almost 80%.
The Bank noted that with a solid primary surplus and spending already constrained, the Government may consider using part of its fiscal space to unwind some of the regressivity in Sri Lanka\u2019s tax mix.<\/p>\n\n\n\n
Daily FT<\/p>\n","protected":false},"excerpt":{"rendered":"
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