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CWA # 1632, 20 March 2025
NIAS Neighbourhood Reader
Sri Lanka Budget 2025: Three Major Takeaways

  Suchitra Jakkala

Emphasis on Digital Economy, Infrastructure, Health and Education

In February, President Anura Kumara Dissanayake presented the first budget. There was a widespread expectation about the budget, given the recent background. Sri Lanka was hit by a worst economic crisis in 2022. Inflation skyrocketed to over 70 per cent essentials like food and fuel became scarce, and public protests shook the foundations of governance. Decades of fiscal mismanagement, compounded by global shocks, the government defaulted on its USD 51 billion foreign debt, marking the first default in the country’s history.

Some of the major focus areas in the budget include an increase in the cost of living allowances for public sector employees and public pensioners. The education sector was allocated LKR 237 billion, the implementation of drug procurement guidelines, and infrastructure development was allocated a sum of LKR 404 billion, the health sector was allocated LKR 410 billion, the Pali Aru water project was implemented to address the Jaffna water issue, sector of women and social empowerment was allocated LKR 75 billion, borrowing limit was increased from LKR 3,900 billion to LKR 7,350 billion. Total revenue and grants for the year 2024 was LKR 4,127 billion whereas the total expenditure was somewhere around LKR 6,978 billion making the deficit of LKR 2,851 billion.

Following are the major takeaways of the budget

1. Emphasis on digitizing
Economic growth projections are aimed at 5 per cent this year, the government is to generate revenues of LKR 4,960 billion, 14 per cent of the GDP with LKR 4,590 billion which is expected from taxes. This is an increase from the revenue target that was set for the year 2024. The government aims for a primary budget surplus of 2.3 per cent of GDP, aligning with the IMF requirements. The government aims to achieve the target by focusing on one of its major engines of national development which is through the digital economy which aims to change industries, enhance cybersecurity and improve governance and its mechanism as a whole.

As of now, the digital sector earns about USD 1.2 billion which through planned growth is projected to reach USD 5 billion by 2030, alongside the number of professionals in ICT at present is 85,000 which is projected to reach 2,00,000 in the same period that is till 2030. The reforms that the government wants to bring are through an electronic digital-based payment system to make transactions more secure and convenient, and through digitizing the public sector services to make them more efficient, all these are essential parts of economic modernization that the government is aiming for. This will play a key role in enhancing operational efficiencies and in cost-cutting.

Sri Lanka is keen on introducing the Cyber Security Bill to improve the country’s digital infrastructure. Around 9,218 incidents of financial phishing were detected in 2024 alone. In January 2025, the Ministry of Digital Economy expedited the enactment of the Cyber Security Bill as part of a broader digital policy initiative to address rising cyber threats. President Dissanayake has assured the parliament that the budget 2025 would ensure providing fundamental steps to achieve hub status for trade, logistics, financial services and the digital economy and digital transformation, the commitment of which can be seen in its financial allocations. The Ministry of Digital Economy has allocated LKR 3 billion for the initiatives that have to be taken to achieve the set target for 2030.

2. Focus on infrastructure and its development
Infrastructural development is a focus area in the budget. The Ministry of Transport, Highways, Ports and Civil Aviation allocated LKR 52.4 billion for recurring costs and LKR 421 billion for capital expenditure in its efforts to modernize infrastructure and connectivity. Key initiatives undertaken benefiting the construction industry include the establishment of a development bank, VAT arrears relief of construction contractors, and providing a legal framework for a public-private partnership (PPP) bill.

Proposed infrastructure projects include the development of Colombo West Terminal 2 and Colombo North Port, Kerawalapitiya Custom Inspection Yard, Bloemendhal Logistics Park and Container Dry Port (ICD) in Veyangoda. Expansion of Bandaranaike International Airport Terminal 2 has also been put forth. Water sector projects including rehabilitation of downstream development in Galoya, Rajamganaya, and Minneriya have been allocated LKR 3 billion. Extension of the Kelani Valley Railway Line and further upgradation of the Thambuththegama Railway Station under railway projects have been allocating LKR 350 million. LKR 1 billion has been allocated for government housing projects which also includes housing for marginalised groups.

3. Focus on the health and education sector
The budget showcases substantial investments to ensure that two main pillars health and education are provided equally for all and foster a brighter future. LKR 619 billion has been allocated for the educational sector out of which LKR 36.841 billion is to improve the higher education infrastructure, aiming to provide students with better resources. This is to bring the social, political and economic changes that the country needs.

The reform plans include modernizing the curriculum, enhancing teacher training, revising student assessment methods and spending on vocational education.  While in the health sector, a sum of LKR 604 billion has been allocated out of which LKR 185 billion has been allocated to ensure the supply of medicines, LKR 7.5 billion to supply nutrition packs for pregnant mothers and LKR 5 billion has been allocated for the ‘Thriposha’ program.

In a country where health indices have been coming down because of the catastrophic economic and financial crisis that COVID-19 brought in and with its increasing elderly population, the budget spending on the health sector might bring in a reform.

To conclude, the 2025 budget reflects the road that Sri Lanka needs to move forward, ensure transformation, stabilize its economy and uplift its people. Guided by critical economic reforms, a comprehensive debt restructuring agreement, and support from the IMF, Sri Lanka should be on a tough path to economic recovery.

About the author
Suchitra Jakkala is currently pursuing her master's degree in Politics and International Relations at the Department of Politics and International Studies, Pondicherry University.

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