• Conservative revenue targets for vehicle imports achievable, says Panduwala
• Increase in allocation for capital expenditure necessary, says Moramudali
• Public sector wage hike will further inflate expenses, says Fernando

Though the Sri Lankan government did not stray from the IMF’s target expectations in its budget for 2025, by committing to a 2.3% primary balance surplus, it raises concerns over the long-term impact of increased public sector wages and the challenges of balancing welfare spending with fiscal discipline, experts speaking to The Daily Morning Business said.

Frontier Research (Pvt) Ltd. Senior Macroeconomist Thilina Panduwawala commended the government for maintaining fiscal prudence. “The gradual public sector allocation increase in line with the 2.3% primary balance budget is a positive sign.”

“Despite overperforming in revenue collection last year, the government has budgeted conservatively, which bodes well for Treasury stability,” Panduwawala said, speaking to The Daily Morning Business yesterday (17).

The budget includes a roughly Rs. 130 billion increase in allocations for welfare programmes and public sector spending.

Panduwawala noted that this was expected, as Sri Lanka must align its expenditures with IMF targets. “Change is required to meet these goals, and the increased spending reflects that,” he added.

Panduwawala also highlighted the conservative revenue targets for vehicle imports, which are expected to be met.

“By assuming a smaller number of vehicle imports, the government has set a realistic target that won’t be challenging to achieve,” he said.

Umesh Moramudali, a researcher specialising in public debt and development, praised the budget’s focus on capital expenditure. “The increase in allocation for capital expenditure was necessary,” he said. “In recent years, development projects have been constrained, especially during the debt restructuring process.”

Moramudali pointed to stalled infrastructure projects funded by bilateral creditors, such as the Colombo Metro Urban Development Project, Port City Colombo, and the Colombo Commercial City Development Plan, which were initially backed by the Chinese Exim Bank.

“With debt restructuring ongoing, these projects have faced delays, but the increased capital expenditure signals a renewed focus on development,” he explained.

Additionally, Moramudali highlighted Japan-funded initiatives aimed at improving water supply and sanitation, such as the Anuradhapura North Water Supply Project, the Kalu Ganga Water Supply Expansion Project, and the Kandy City Wastewater Management Project.

These projects, supported by the Japan International Cooperation Agency (JICA), are critical for addressing Sri Lanka’s infrastructure gaps.

While the budget’s focus on welfare and public sector salaries has been welcomed, some economists warn of potential long-term risks.

Advocata Institute CEO Dhananath Fernando expressed concerns over the inflationary impact of wage hikes. “The increase in state sector salaries will further inflate expenses on an already bloated public sector. While pension increments are phased out and may not have a long-term effect, salary hikes could strain the pension system in the future.”

Fernando also emphasised the need for monetary stability. “With a state income of Rs. 5 trillion and expenditure at Rs. 7.1 trillion, overspending could pressure the rupee and destabilise the economy,” he cautioned.

Despite these concerns, Fernando acknowledged the budget’s positive policy direction. “The focus on private industrial zones, the new Customs Act, RCEP economic diplomacy, and social safety nets is commendable,” he said. “The messaging is in the right place, but execution will be key.”