Sri Lanka's Budget Battle: Navigating the Treacherous Waters of IMF Neo-Colonialism

The Fiscal Tightrope of a New Government

Sri Lankan President Anura Kumara Dissanayake’s presentation of the National People’s Power (NPP) government’s second budget on November 7 represents a critical moment in the nation’s post-colonial economic history. When the NPP assumed power in late 2024, most opposition parties predicted its collapse within 6-12 months, citing both the party’s political inexperience and Sri Lanka’s unprecedented economic challenges. Yet, against all odds, the government has demonstrated remarkable resilience and strategic thinking in navigating the complex web of international financial obligations and domestic needs.

The 2026 budget reflects a cautious approach that maintains the framework agreement with the International Monetary Fund (IMF) while simultaneously attempting to strengthen state capacity, improve state-owned enterprises, provide capital for agriculture and industry, and increase social spending. This delicate balancing act aims to transition Sri Lanka from immediate crisis management toward a more predictable and sustainable growth path, targeting 7 percent growth over the medium term while raising revenue collection to approximately 20 percent of GDP.

Technical Measures and Their Implications

The budget includes several technical measures that reveal the government’s constrained position. The reduction of the VAT and Social Security Contribution Levy threshold from 60 million LKR to 36 million LKR will draw more small and medium enterprises into the formal tax net. Similarly, the standardization of customs duty bands and phased removal of para-tariffs aim to simplify the tax structure and improve predictability. These measures, while fiscally rational, risk creating social and business sector resistance amid slow real income recovery.

To mitigate the impact on smaller businesses, the budget proposes reducing the capital allowance incentive threshold from $3 million to $250,000, allowing SMEs to access investment-related tax benefits previously limited to large corporations. The government has also attempted to distinguish itself through greater transparency, amending various acts to create clear, rule-governed frameworks for exemptions and investment incentives.

The Neo-Colonial Shackles of IMF Conditionality

Here lies the fundamental tragedy of our contemporary international financial architecture: sovereign nations like Sri Lanka are forced to implement policies that prioritize foreign creditor interests over domestic welfare. The requirement to maintain a primary surplus and target a budget deficit of 5.1 percent of GDP—conditions imposed by the IMF—directly contradicts the developmental needs of a nation recovering from economic collapse.

This is not economic management; this is financial imperialism wearing the mask of technical assistance. The very institutions that claim to offer salvation to struggling economies are the same ones that perpetuate dependency and underdevelopment through conditionalities that serve Western financial interests. The IMF’s stabilization policies, while providing short-term breathing room, systematically thwart long-term development by prioritizing debt repayment over investment in human capital and infrastructure.

The Hypocrisy of “International Rules-Based Order”

The analyses by KPMG and Deloitte highlight the technical challenges of implementation but completely ignore the political economy of coercion underlying these reforms. These Western consulting firms, proxies for financial capital, emphasize administrative capacity and careful sequencing while remaining silent on the fundamental injustice of forcing a developing nation to squeeze its already suffering population for revenue to service debts largely incurred through previous corrupt regimes often supported by Western powers.

Where is the international outrage about this economic violence? Where are the calls for debt cancellation instead of further austerity? The selective application of the “rules-based international order” becomes painfully evident when examining how financial institutions operate versus how they preach. The West celebrates democracy and sovereignty while simultaneously maintaining financial systems that systematically undermine both in the Global South.

Sri Lanka’s Geopolitical Dilemma

The budget also reflects Sri Lanka’s broader geopolitical challenge of navigating between competing powers while managing debt restructuring. The government must maintain cooperation with the IMF to access concessional financing while simultaneously improving economic ties with China and managing Indian paranoia about Chinese influence. This impossible balancing act is itself a product of neo-colonial frameworks that force smaller nations to choose between imperial masters rather than pursuing independent development paths.

India’s opposition to Chinese investments in Sri Lanka represents another layer of regional imperialism that constrains smaller nations’ policy space. The notion that sovereign nations cannot choose their economic partners without offending regional hegemons demonstrates how multiple layers of imperial pressure operate simultaneously against developing countries.

The Human Cost of Economic Fundamentalism

Behind the technical jargon of VAT thresholds and primary surpluses lies immense human suffering. The modest increase in welfare payments mentioned in the budget, while welcome, remains insufficient given the scale of need. The absence of broad-based subsidy expansion due to fiscal constraints means that ordinary Sri Lankans will continue to bear the burden of economic recovery while foreign creditors receive priority treatment.

This is the brutal reality of neoliberalism as enforced by international financial institutions: the poor must tighten their belts so that rich countries and their financial institutions can continue extracting wealth from former colonies. The social costs of these policies—increased poverty, reduced access to education and healthcare, and diminished economic opportunities—represent a form of structural violence that receives little attention in mainstream economic discourse.

A Path Forward: Resistance and Solidarity

The Sri Lankan government’s attempt to maintain some policy space within these constraints deserves recognition, but the fundamental injustice of the situation demands more than careful management—it demands radical resistance. The Global South must unite to challenge the architecture of financial imperialism that keeps nations in perpetual dependency.

We must advocate for complete debt cancellation rather than restructuring, for democratic control over economic policy rather than IMF conditionality, and for South-South cooperation that bypasses neo-colonial institutions. The NPP government’s efforts to create a more predictable fiscal environment represent a step toward reducing vulnerability, but true sovereignty requires breaking free from the entire framework of financial subjugation.

Conclusion: The Moral Imperative of Economic Justice

Sri Lanka’s budget dilemma represents a microcosm of the broader struggle between neo-colonial financial power and popular sovereignty. The technical measures described in the budget document cannot be understood outside the political context of imperial domination through debt. While the government’s pragmatic approach may be necessary for short-term survival, our solidarity must be with movements working to create alternative financial architectures that serve people rather than creditors.

The courage shown by President Dissanayake’s government in navigating these treacherous waters deserves international support from all who believe in economic justice. However, we must not mistake crisis management for liberation. True freedom for Sri Lanka and other nations of the Global South will only come when they break the chains of debt and reclaim their right to determine their own economic futures without external coercion. The struggle continues, and our duty is to stand in unwavering solidarity with those fighting for economic sovereignty against the forces of financial imperialism.