By Jehan Perera –

Jehan Perera

The budget for 2026 proposed by the government has been generally well received. The Ceylon Chamber of Commerce praised the plan, with its chairperson Krishan Balendra stating that “from a private-sector perspective this Budget provides stability” and emphasising that “with the steps that were taken and the discipline we have seen since 2022, Sri Lanka avoided going down the same path as countries that suffered years of high inflation and collapsing exchange rates. This budget continues that stability.” On the opposition side, Harsha de Silva of the SJB acknowledged that the government “has shown prudence in aligning with international financial institutions”, even though his party will continue to scrutinise the human cost of the measures and the absence of a clear programme to achieve growth.

The government’s deference to the international community with regard to economic affairs has been unexpected. Many analysts believed that, given the party’s roots in Marxist ideology, the leadership would adopt a more confrontational stance. Yet the opposite has happened. This adherence to the IMF’s prescriptions has brought two main concerns to light. First, the economic hardships on the majority of the population are barely mitigated. The budget appears focused on preserving stability rather than growth or social justice. There is no meaningful tax relief and the policies continue to prioritise revenue for the government rather than direct benefit to the people. However, it must be noted that the 2026 budget substantially enhances welfare programmes, including the Aswesuma welfare scheme, which increases allowances for low-income and extremely poor families.

Second, the budget does not set out a roadmap for how production and investment will expand in the short term. There are no major development initiatives comparable to the Mahaweli River diversion or the 200-Garment Factory programme that once transformed rural infrastructure and created jobs. The government’s priority seems to be in avoiding another cycle of international debt and bankruptcy as occurred in 2021, a scenario no Sri Lankan would wish to see repeated. Yet if the current level of hardship continues, frustration among the people may rise and generate the same mass disillusionment that pushed the previous government out of power. The government now needs to move into the next phase of recovery by setting out a plan not only for stabilisation but for genuine growth.

Equal Priority

To promote growth, a pre-requisite is to unify the country’s multi-ethnic and multi-religious population behind the developmental effort. The government has made a commendable start by convincing all sections of society that they will be treated as equal citizens without discrimination. In the past, the war and the ensuing instability kept foreign investors away. Even though sixteen years have passed since the war ended, foreign investment has still not materialised on the scale seen in the rest of Asia. High levels of corruption, which the government is now tackling with greater seriousness, and continuing bureaucratic delays have contributed to this problem.

Equally significant is the failure to heal the wounds of the war, reflected in the recurring sessions of the United Nations Human Rights Council (UNHRC) in Geneva. The government therefore needs to demonstrate the same level of commitment in dealing with the UNHRC resolutions—especially the 2015 Resolution 30/1 and those that followed, 34/1, 40/1, 46/1 and 51/1 as it does in implementing the IMF agreement. At present, the government appears to regard IMF compliance as essential and UNHRC compliance as optional, leaving the reconciliation process lagging behind.

During the budget debate, the president spoke in a non-committal manner about holding provincial council elections. The system of provincial councils, established in 1987 as part of the constitution and a solution to the ethnic conflict, gives Tamil and Muslim minorities a measure of decision-making power in the areas where they live as a local majority. When elections fell due in 2017, they were deliberately delayed by the then government through a half-completed amendment to the election law. The conduct of these elections is now part of the UNHRC resolutions and also of the European Union’s GSP Plus requirements. The present government, with its two-thirds majority, has the power to expedite the legislative process and demonstrate commitment to political inclusion.

For sustained growth, the government needs to give equal priority to reconciliation as it gives to economic reform. Just as strict compliance with the IMF programme has reassured international financial institutions, systematic implementation of the UNHRC resolutions would impress the international human-rights community and potential investors, while reassuring the minority communities within the country. A focus solely on macroeconomic recovery will not win lasting confidence among citizens or investors unless matched by visible political progress towards reconciliation and shared governance.

Foreign Investment

Recent surveys such as the Sri Lanka Barometer reveal that trust among ethnic and religious minorities, particularly those in the north and east where the war was fought, remains low and continues to decline. Among the potential foreign investors are members of the Tamil diaspora, who may invest significantly in Sri Lanka if they are confident that their investments will be secure and that the government is genuinely committed to resolving the ethnic conflict. One representative of the diaspora, Roger Srivasan, a former President of the UNP (UK) branch, addressing a group of community leaders last week, said that the Tamil diaspora had an annual economic output of between 50 and 100 billion US dollars, a portion of which could be invested in Sri Lanka if there were credible steps toward sustainable peace.

Such investment would send a powerful signal to international investors that Sri Lanka is politically stable and worth engaging with. A national strategy that couples economic recovery with reconciliation would yield not only improved macroeconomic indicators but also deeper social cohesion, a broader base for investment, and a more resilient economy. By investing in unity as much as in production, the country can tap into its latent potential across all regions and communities. Economic growth that benefits the majority of people will not come from fiscal management alone, but from reaching out to all citizens and ensuring that each has a stake in national progress. Sri Lanka can move beyond stabilisation into a sustainable growth era only if it builds on the two pillars of economic discipline and national reconciliation.

Growth will not come from balancing accounts alone but from overcoming the trust deficit and rebuilding a sense of belonging among those long excluded. The reconciliation process must no longer be seen as a political concession but as an integral part of national development. If the government follows the UNHRC resolutions with the same determination that it follows the IMF programme, it will not only regain the confidence of the international community but also lay the foundation for sustainable peace and prosperity. For economic growth to take root, the government must give the same priority to reconciliation as it gives to the IMF programme, ensuring that stability is matched by unity and inclusion.