Sri Lanka’s Budget Deficit Halved as Revenue Climbed up and Capex fell

Abstract

Sri Lanka’s fiscal performance improved significantly during the first eight months of 2025. The budget deficit was reduced by more than fifty per cent compared to the same period last year, as increased revenue growth more than offset a modest rise in expenditures.

Government revenue and grants increased by 29%, reaching LKR 3,301 billion by August 2025, up from LKR 2,566 billion in 2024. Meanwhile, total government spending grew moderately by 7%, totalling LKR 3,381 billion. This growth was mainly due to higher recurrent expenses, including salaries, pensions, and interest payments. Conversely, capital expenditure declined by 24%, dropping from LKR 435 billion in 2024 to LKR 331 billion in 2025. Consequently, the overall budget deficit was reduced by 55%, from LKR 911 billion in 2024 to LKR 411 billion in 2025.