Sri Lanka’s total government revenue is projected to decline in 2026 after a strong increase recorded in the previous year, according to the Ministry of Finance.
The forecast, published in the Fiscal Strategy Statement 2027, estimates that total government revenue, including grants, will decrease from 16.7% of Gross Domestic Product (GDP) in 2025 to 15.8% of GDP in 2026.
The Finance Ministry said the expected decline is primarily due to the normalization of government revenue following the one-time increase in tax collections generated by the resumption of vehicle imports in 2025.
The statement noted that government revenue had fallen to just 8.4% of GDP in 2022 during Sri Lanka’s economic crisis, one of the lowest revenue-to-GDP ratios recorded globally at the time.
Since then, a series of tax policy reforms and improvements to revenue administration have helped broaden the country’s tax base while strengthening tax compliance. The Ministry said these measures have also contributed to reducing tax evasion and minimizing revenue leakages.
Despite these improvements, the report warns that external risks continue to pose challenges to public finances. Escalating geopolitical tensions in the Middle East, disruptions to global trade and potential volatility in international energy markets could affect Sri Lanka’s ability to achieve its future revenue targets.
The Fiscal Strategy Statement emphasizes the importance of maintaining fiscal discipline while strengthening revenue collection to support economic stability and debt sustainability.
