Sri Lanka’s budget swung to a deficit of Rs. 119.23 billion in July, erasing the Rs. 9.51 billion surplus the government had accumulated over the first half of the year, according to fiscal operations data from the Central Bank of Sri Lanka reported by the Daily FT and Hiru News.
That leaves a cumulative overall deficit of Rs. 109.72 billion for the seven months to July.
Two consecutive monthly deficits, not one
The July figure is the second monthly shortfall in a row, and the reversal is steeper than the headline suggests when set against this year’s earlier readings.
| Period | Cumulative budget balance |
|---|---|
| January–May | +Rs. 197.3bn surplus |
| January–June | +Rs. 9.51bn surplus |
| January–July | −Rs. 109.72bn deficit |
The balance therefore fell by roughly Rs. 187.8 billion during June alone, then by a further Rs. 119.23 billion in July — a swing of about Rs. 307 billion in two months. Neither outlet draws attention to the June step; it is visible only by comparison with the earlier release.
The annual picture still improved sharply
Against the same seven months of 2025, when the government ran a Rs. 556.11 billion deficit, the cumulative shortfall has narrowed 80.3%.
Revenue is doing the work. Total revenue and grants rose 25.1% year-on-year to Rs. 3,421.26 billion, from Rs. 2,734.86 billion. Tax revenue, the largest component, grew 23.8% to Rs. 3,136.32 billion, while non-tax revenue rose 44% to Rs. 281.55 billion.
Expenditure grew far more slowly — up 7.3% to Rs. 3,530.98 billion. Within that, recurrent spending rose just 4.9% to Rs. 3,149.13 billion, while capital expenditure and lending minus repayments rose 31.6% to Rs. 381.85 billion.
The primary balance, the benchmark monitored under Sri Lanka’s IMF programme, strengthened 38.5% year-on-year to a surplus of Rs. 1,348.58 billion.
Seasonal, or a turn?
The Daily FT reports that economists attribute the pattern to timing rather than deterioration: revenue collections bunch early in the year, helped by import-related taxes and the settlement of previous-year corporate tax liabilities, while capital spending and lending typically accelerate in the second half as public investment is executed.
On that reading the mid-year reversal is unremarkable — Sri Lanka has run an annual budget deficit in almost every year for four decades. What is unusual this year, the paper notes, is that a surplus appeared at all in the first half.
The IMF has said the government remains committed to restoring a primary surplus of 2.3% of GDP in 2027 after temporary fiscal easing this year, and has called for broader tax compliance, faster state-owned enterprise reform, continued cost-reflective energy pricing and stronger social safety nets. An IMF team is in Colombo this month for the seventh review, with the Ceylon Petroleum Corporation and Inland Revenue among its subjects.
Hiru separately reports total outstanding central government debt at Rs. 30,795.04 billion as at end-May 2026, with domestic debt easing slightly to Rs. 18,609.43 billion while foreign debt rose to Rs. 12,185.61 billion.
Not reported
Neither outlet gives a month-by-month breakdown of which expenditure lines drove the June and July shortfalls, nor whether the government still expects to meet its full-year deficit target. Neither states what the annual estimate implies for the remaining five months, and neither addresses how the temporary fiscal easing already announced this year is being accounted for.
