Sri Lanka’s 2025 budget has allocated a staggering LKR 437 billion to defence spending—an increase of LKR 12 billion from the 2024 revised estimates, despite the island’s ongoing economic struggles.
Rising Defence Budget and Military Salaries
The budget, presented by Sri Lanka president Anura Kumara Dissanayake, marks his first since taking office. It includes a significant salary increase for military personnel, with pay hikes ranging from 27% to 33% across different ranks. This comes at a time when Sri Lanka remains one of the most militarised nations per capita and continues to maintain an extensive military presence in the Tamil homeland.
LKR 437 billion is estimated to be spent on defence in Budget 2025, an increase of LKR 12 billion compared to the revised estimates for 2024
The increased military budget raises serious concerns about the government’s fiscal priorities, especially as social welfare funding has been slashed by LKR 35 billion, leaving only LKR 43 billion allocated for crucial public assistance programmes.
Economic challenges and IMF conditions
The 2025 budget aims to stabilise Sri Lanka’s crisis-hit economy, but economic analysts have warned that it could lead to a wider fiscal deficit. The budget deficit is projected at 6.7% of GDP, falling short of the 5.2% target required by the International Monetary Fund (IMF) to release the next tranche of the $2.9 billion bailout package. Sri Lanka must also increase revenue to 15.1% of GDP to remain eligible for continued IMF support.
Moody’s Ratings has flagged the budget’s fiscal risks, highlighting Sri Lanka’s weak debt affordability, narrow revenue base, and ongoing social constraints. Fitch Ratings’ Sagarika Chandra stated that the credibility of the government’s fiscal plan will determine whether Sri Lanka can meet its obligations under the IMF programme.
If the government fails to meet its IMF targets, the release of the next $333 million tranche of the bailout could be at risk, further deepening the economic crisis.
Military spending vs. development in the Tamil homeland
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Photograph: Verite
Despite the increased defence budget, the government has acknowledged that the Northern Province has been largely excluded from mainstream development. Several projects have been outlined in the budget, including:
• LKR 100 million to upgrade Jaffna Library, with an additional LKR 200 million for regional libraries.
• LKR 5,000 million for the rehabilitation of rural roads and bridges in the Northern Province.
• LKR 1,000 million to commence construction of the Vadduvakal Bridge in Mullaitivu.
• LKR 1,500 million allocated for resettlement and housing for displaced families in the North and East.
• Establishing an Industrial Estate in Paranthan, dedicated to chemical product manufacturing.
Additionally, LKR 7,583 million has been allocated for the Malayagam Tamil community, focusing on infrastructure, housing, vocational training, and education.
While these allocations may seem like a step towards economic inclusion, they remain dwarfed by military spending. The Tamil homeland continues to suffer from militarisation, land grabs, and state-sponsored Sinhalisation, with large swathes of private land still occupied by the Sri Lankan military.
Funding priorities and social welfare cuts
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Photograph: Verite
In stark contrast to the defence allocation, Sri Lanka has drastically reduced social welfare spending to LKR 43 billion, marking a LKR 35 billion decrease from 2024. While the budget includes a LKR 20 billion bailout for SriLankan Airlines, other crucial sectors have received less priority.
"The budget underscores the challenge that Sri Lanka's fiscal authorities will continue to face because of its still weak debt affordability, still narrow revenue base, and underlying social constraints," said Christian Fang, vice president - senior analyst at Moody's Ratings.
Read the complete budget here.
