It was the best of times, it was the worst of times: the new National People’s Power (NPP) Government, riding on a wave of election victory, has been tasked with ushering Sri Lanka into an era of growth. 

However, the realities of fiscal limits in a post-default setting remain. Caught between promises of change and practical decision-making, does the first NPP Budget compromise on the pledges made in its election manifesto?   

Expenditure proposals  

The 2025 Budget aims for growth but keeps a close eye on spending. Government financial resources remain limited, with the total expenditure at Rs. 7.19 trillion against a revenue projection of Rs. 4.96 trillion. This leaves a deficit of Rs. 2.2 trillion. 

Despite this, the Government has focused on social security, education, healthcare, and digital transformation. This approach aims to build long-term economic strength. The Government has set aside a larger sum for social security and has boosted spending on ‘Aswesuma’ to Rs. 232 billion from the Rs. 183 billion allocated last year.  

The Budget also hopes to meet some of the NPP’s promises on education, but gaps remain. The manifesto promised to boost education spending to 6% of Gross Domestic Product (GDP), but the Budget allocation remains far from this target. The Budget partially fulfils commitments on student financial aid with the Mahapola and bursary scholarships raised by Rs. 2,500 each. 

The Government has set aside Rs. 500 million to review and relocate schools. This supports the manifesto’s goal of having a Government school for primary education within 3 km of a child’s home or their parents’ workplace.  

The health sector has received a budget increase to Rs. 604,000 million, raising it from around 1.67% of GDP in 2024 to 1.83% in 2025. The NPP manifesto focused on digital health. The Budget reflects this priority by including digitalising health system functions, although it does not explain how far this will go. 

To tackle healthcare gaps in the plantation sector, the Budget funds estate-level health services through Public-Private Partnerships (PPPs). This move supports the manifesto’s goal of promoting youth health in these regions.  

The 2025 Budget aims to set up a development bank using State banks, with the National Credit Guarantee Institution (NCGI) set to provide support. This plan hopes to increase Small and Medium-sized Enterprise (SME) financing. It doesn’t create a new loan relief institution like the manifesto promised; instead, it aims to boost SME support within the current system. 

Macro vision 

A key difference in the macro vision and execution is the approach to debt and revenue targets. The manifesto proposed easier targets, aiming to renegotiate a better International Monetary Fund (IMF) deal based on the NPP Government’s own Debt Sustainability Analysis (DSA). However, the Budget speech confirmed that current targets will stay in place. 

Several revenue proposals made references to the NPP policy statement, such as digitising Value-Added Tax​ (VAT) collection and introducing legal measures for simplifying tariffs, improving Customs operations, and enhancing information sharing among revenue agencies. Some promises were implemented with modifications. 

For instance, instead of offering VAT exemptions on school supplies to help with living costs as mentioned in the manifesto, the actual policy provided a stationery allowance for families already on welfare schemes. Individual income tax thresholds were also increased to a lower-than-promised level. 

One of the most discussed policies was the removal of tax exemptions on service exports, including freelance ICT services. Critics saw this as a contradiction of the manifesto’s promise to uplift the ICT industry, but others argued it aligned with the broader goal of a fairer tax system. The 15% maximum tax rate remains lower than the general rate, aiming for more balanced taxation. 

The position on State-Owned Enterprises (SOEs) was vague in the NPP policy document. The Budget speech showed the Government’s preference for managerial improvements under State control over privatisation. Interestingly, the recent move to list certain SOEs on the stock exchange suggests potential for selective privatisation, not involving the wholesale sale of State assets. 

It is too premature to comment on other Budget promises like long-awaited microfinance regulations and the national export plan. Some parts of the manifesto that the Budget overlooked include revenue administration, promoting high value, non-conventional exports, and engaging expatriates for development. 

Additionally, there was no mention of improving budget implementation, which remains a critical area for success. 

What’s the verdict?  

This Budget is not without its merits. In fact, it shows a cautious approach, balancing ambition and practicality. The party won power by promising economic change. Yet, the Government must grapple with the existing political culture and the scrutiny of the international community following the default. 

If success is measured by how closely a Government’s economic policies reflect its pre-election promises, then this latest Budget has fallen short. But at present, a manifesto is not a legally binding document in Sri Lanka. And in this case, having the flexibility to adapt to new realities can be considered a sign of strength.  

A key virtue of the 2025 Budget is the targeted approach to social security. It provides direct financial help to vulnerable communities, avoiding broad tax breaks and large subsidies. There is also a focus on closing long-standing gaps in healthcare.   

The Budget takes a cautious approach to SOE reforms. However, without deeper changes, the proposed framework may fall short of ensuring true efficiency and long-term financial sustainability. 

Despite this careful approach, the 2025 Budget does not fulfil several key promises in the party’s manifesto. This raises questions about why these promises were made in the first place if the economic situation was too unpredictable to anticipate outcomes. Were these commitments grounded in realistic planning, or were they merely intended to win votes? 

Since the complete renegotiation of the IMF deal was abandoned in favour of lesser adjustments, it became necessary to have moderate measures like tax relief for the middle classes and salary increments for the public sector. On the other hand, the scars remaining from the cost of living crisis demand to be addressed.  

Thus far, it is clear that the NPP Government has not adhered completely to its original plan. That said, since this is its first year in office, there is still time to follow through on longer-term goals. 

The ultimate test of this Government’s capabilities will begin after the Budget is passed in Parliament, when faced with implementation. If its performance does not live up to its promise, its supporters may look for change elsewhere.

(Peiris and Ekanayake are Programme and Research Officers at Arutha. Arutha is a Colombo-based policy think tank focused on economic research and communication with a special interest in public debt and taxation. Its economic civic education initiative, Default LK, was established during Sri Lanka’s first-ever sovereign default in 2022)