Sri Lanka’s 2025 Budget introduces an extensive social welfare package aimed at supporting vulnerable populations while navigating economic challenges. With allocations spanning poverty alleviation, education, healthcare, and housing, the Government aims to provide relief to struggling communities.
However, concerns about fiscal sustainability, economic dependency, and Sri Lanka’s commitments to the International Monetary Fund (IMF) continue to spark debate.
The ‘Aswesuma’ social protection programme has been expanded, providing Rs. 17,500 per month for extremely poor households, Rs. 10,000 per month for low-income households, and Rs. 5,000 for the elderly and disabled.
In education, the Government has allocated Rs. 6,000 per student for school supplies, Rs. 4,600 million for Mahapola and university scholarships, and Rs. 32.1 billion for school meal programmes to combat malnutrition.
Healthcare has received a historic Rs. 604 billion, with Rs. 185 billion earmarked for essential medical supplies, Rs. 7.5 billion for maternal nutrition programmes, and Rs. 5 billion for the Thriposha nutrition supplement for children and expectant mothers.
Housing and resettlement initiatives include Rs. 18 billion for low-income housing, Rs. 4.27 billion for estate housing, Rs. 3.5 billion for resettling war-affected families, and Rs. 1 billion for maintaining Government-built housing schemes.
Additionally, the Government is investing in digital transformation to modernise welfare distribution and ensure transparency, with plans to launch the Sri Lanka Unique Digital Identity (SLUDI) to track beneficiaries and eliminate corruption.
These welfare policies, while providing essential relief to vulnerable populations, raise concerns about fiscal sustainability, dependency, and the ability to meet IMF-mandated fiscal targets.
The 2025 Budget, presented by Minister of Finance, Planning, and Economic Development Anura Kumara Dissanayake, earmarks Rs. 232.5 billion for welfare programmes, a significant increase from previous years. The key highlights include expanded financial assistance for low-income families, students, the elderly, and persons with disabilities.
Some of the most substantial allocations include ‘Aswesuma,’ with increased financial assistance for low-income and extremely poor households; child welfare and education benefits such as free textbooks, uniform grants, and scholarships for university students; healthcare and nutrition initiatives including increased allowances for kidney patients, improved pregnant mothers’ nutrition schemes, and additional mental health awareness programmes; and housing and resettlement assistance for estate housing, war-affected families, and urban low-income communities.
Balancing welfare with economic growth
Speaking to The Sunday Morning, Deputy Minister of Rural Development, Social Security, and Community Empowerment Wasantha Piyatissa acknowledged the concerns about the economic impact of increased welfare benefits, but asserted that the Government had carefully designed these programmes to fuel economic growth.
“While it will undoubtedly be challenging, we have also ensured that these welfare benefits flow into areas that can drive the economy. For example, we have proposed to increase export earnings to $ 19 billion. We have also devised mechanisms to utilise the skills of youth in rural economies to develop export industries,” he said.
According to Piyatissa, investments in agriculture, health, education development programmes, and other critical sectors aim to balance welfare spending while fostering savings and economic activity. He added that these strategic investments would mitigate concerns about fiscal deficits and long-term dependency.
However, economic experts like former Deputy Governor of the Central Bank of Sri Lanka Dr. W.A. Wijewardena cautioned that even with such plans, the challenge lay in whether Sri Lanka could generate sufficient revenue to sustain its welfare programmes.
“Unless Sri Lanka generates sufficient income, these welfare packages will not be sustainable. Moreover, even if they are proposed, there is no guarantee they can be fully implemented.
“Currently, the Government’s revenue target is 15.1% of Gross Domestic Product (GDP), amounting to approximately Rs. 5 trillion. However, out of this amount, Rs. 2.9 trillion is required for interest payments on debt and Rs. 1.3 trillion is allocated for capital expenditure. This leaves only Rs. 800 billion, which must be spread across all welfare programmes, making financial feasibility a significant concern,” Dr. Wijewardena asserted.
Addressing corruption and ensuring efficiency
One of the recurring challenges in Sri Lanka’s welfare initiatives has been corruption and inefficiencies. Reports of fund misallocation and ineligible recipients benefiting from programmes have raised concerns among both policymakers and the public. The ‘Aswesuma’ programme, in particular, has faced allegations of corruption.
Deputy Minister Piyatissa stated that the Government was taking decisive action to curb these issues. “Corruption begins from politicians and political structures. If the politicians in charge remain clean and adopt clean policies, State officials will not have the opportunity to be corrupt. We have all pledged to remain distant from corruption.”
To enhance transparency and accountability, the Government plans to introduce a centralised database in March or April that will verify beneficiaries and detect fraudulent claims. “This database will help us remove unsuitable candidates and ensure that only those genuinely in need receive support,” Piyatissa affirmed.
Dr. Wijewardena echoed the need for efficient targeting and accountability, pointing out that mismanaged welfare programmes had historically fuelled corruption. Addressing the matter of excessive handouts leading to misuse and dependency, he said: “Historically, whenever free benefits are distributed, it creates incentives for misuse. There must be incentives for self-sufficiency.”
Digitalisation and welfare administration
A key strategy to streamline welfare distribution is digitalisation. The Government has unveiled plans to gradually transition to an IT-driven system, ensuring better monitoring, accessibility, and accountability.
“By March or April, we will be introducing a database for the ‘Aswesuma’ programme. This database will help us eliminate the names of the ineligible beneficiaries and enter new, deserving beneficiaries. It will also help eliminate the corruption of politicians that took place in the past, allowing them to admit their cronies into the programme,” Piyatissa stated.
“We have a programme to digitise the economy,” he noted. “Over time, we intend to shift all welfare schemes to digital platforms. This will reduce bureaucratic delays, improve tracking mechanisms, and make it easier for beneficiaries to access services.”
This shift aligns with Sri Lanka’s broader vision for a digital economy, which aims to modernise public service delivery and economic transactions.
Challenges to fiscal stability and IMF commitments
Despite these ambitious welfare initiatives, economic sustainability remains a critical issue. The country remains under an IMF-supported debt restructuring programme, which emphasises fiscal discipline and increased revenue generation.
Dr. Wijewardena highlighted the risks: “The IMF is primarily concerned with revenue targets, not how funds are distributed. As long as Sri Lanka achieves the 15.1% revenue-to-GDP ratio, the IMF will be satisfied. However, if welfare spending increases without sustainable revenue sources, it could jeopardise future IMF negotiations.”
The challenge for the Government will be striking a balance between social protection and fiscal responsibility. If welfare programmes lead to a widening deficit without accompanying revenue generation, Sri Lanka may struggle to meet debt obligations and IMF expectations.
The Government’s challenge is maintaining social welfare without undermining its IMF obligations. Piyatissa expressed optimism, stating that enhanced export earnings, digital economy growth, and anti-corruption measures would ensure that welfare benefits did not derail economic recovery.
Impact on private sector growth
One of the major concerns with the expansion of welfare benefits is the potential strain on the private sector. With the Government allocating Rs. 232.5 billion for social protection, businesses face concerns about how these measures might affect taxation, labour dynamics, and investment confidence.
According to Dr. Wijewardena, the private sector bears the tax burden that funds these programmes. “Increased taxation or resource reallocation to sustain welfare programmes could discourage investment and economic expansion. If businesses are taxed heavily to fund welfare, it could deter entrepreneurship and slow economic growth.”
Many business leaders echo these concerns, fearing that higher taxes and Government borrowing could reduce available capital for business expansion. With Sri Lanka already struggling to attract Foreign Direct Investment (FDI), maintaining a competitive tax environment is crucial.
Conversely, Deputy Minister Piyatissa argued that the welfare initiatives would indirectly benefit the private sector by improving workforce quality and consumer spending power. “By strengthening our rural economies and creating employment through skill-based programmes, we ensure that welfare recipients become contributors to the economy rather than long-term dependents.”
The Government is attempting to offset taxation concerns by pushing for export-led growth and digital economy transformation, hoping that increased revenue from these sectors will ease the fiscal strain caused by welfare spending.
Long-term economic stability: Risk or opportunity?
The 2025 Budget reflects Sri Lanka’s ongoing struggle between economic recovery and social protection. With only Rs. 800 billion available for welfare initiatives after servicing debt repayments (Rs. 2.9 trillion) and capital expenditure (Rs. 1.3 trillion), questions remain about whether the welfare expansion is financially viable.
Dr. Wijewardena warned that excessive welfare spending without parallel revenue growth could lead to unsustainable Government debt. “Unless welfare programmes are accompanied by substantial economic growth, Sri Lanka risks deepening its fiscal crisis. The country must find ways to expand its revenue base while maintaining essential welfare programmes.”
The risk of inflation is another concern. Injecting large sums into welfare benefits increases consumer spending, which, if not matched by production growth, could result in higher inflation and currency depreciation. The Government will need to balance short-term relief with long-term economic policies to avoid destabilisation.
One of the Government’s key solutions to managing welfare spending efficiently is digital transformation. Piyatissa highlighted plans to transition Sri Lanka’s welfare system into a fully digital, IT-driven model: “We are gradually shifting towards a digital economy. This will improve tracking mechanisms, reduce corruption, and allow for more transparent resource allocation.”
A digitalised welfare system could help identify fraud, streamline beneficiary selection, and ensure that only eligible individuals receive aid. The introduction of SLUDI is expected to play a significant role in creating a more accountable and data-driven welfare system.
However, implementation challenges remain. Many rural areas lack the necessary digital infrastructure, and transitioning millions of recipients to an online system will require significant investments in technology and digital literacy programmes.
Can SL sustain its welfare model?
The 2025 Budget sets a precedent for Sri Lanka’s approach to welfare and economic development.
While expanded welfare benefits provide immediate relief, long-term sustainability depends on revenue generation through tax reforms and export growth, ensuring welfare programmes do not discourage employment or increase dependency, maintaining IMF fiscal targets to sustain international support, and investing in digital transformation for greater efficiency and transparency.
The coming years will reveal whether Sri Lanka’s welfare model can be sustained and leveraged for economic transformation, or whether it risks becoming a burden on the country’s fragile financial system.