Sri Lanka targets Rs. 2 trillion capital spending in 2027

Sri Lanka’s capital expenditure for 2027 is expected to be around Rs. 2 trillion, with the government working to accelerate procurement and approval procedures so that public investment projects can be implemented earlier, Cabinet Spokesman and Minister Nalinda Jayatissa said.

Sri Lanka has historically struggled to fully utilize its capital expenditure allocations, largely due to delays in procurement and approvals by line ministries.

Finance Ministry officials said the country had spent only 17.4% of its total capital expenditure allocation of Rs. 1.38 trillion by mid-June this year.

The continued underutilization of capital spending has been linked by analysts and economists to structural weaknesses in public financial management and project implementation.

Bureaucratic delays, lengthy procurement disputes, politically influenced project selection and limited technical expertise within line ministries have repeatedly resulted in a portion of allocated funds remaining unused in the Treasury.

“For the upcoming year, we project capital expenditure or development expenditure of Rs. 2,000 billion, or Rs. 2 trillion. This is a substantial budget,” Jayatissa told reporters at Tuesday’s post-Cabinet media briefing.

He said delays in using capital expenditure have mainly resulted from contracts being awarded and projects beginning only around October. According to Jayatissa, starting work that late in the year does not provide enough time to effectively utilize the allocated funds.

“To effectively utilize these funds, awarding contracts in September or starting projects in October is insufficient; work must commence in January. We have established the necessary mechanisms, operational environment and approvals to support this timeline,” he said.

Jayatissa said procurement activities are normally completed and contracts awarded by September in most cases. Under the existing process, actual project work generally begins around that period, meaning meaningful progress can only be assessed toward the end of December.

He noted that project implementation does not necessarily progress at a steady monthly rate, such as 10%, 15% or 20%, but can accelerate significantly during November and December.

The government therefore expects spending and implementation levels to rise considerably toward the end of the year.

The Minister also highlighted a shortage of tar affecting several contracts, a problem that continues to impact some projects. He said the government had submitted a Cabinet paper two weeks ago seeking approval to import 30,000 metric tons of tar.

Although the shortage has caused some delays in road development projects, Jayatissa said the government has the capacity to complete the affected projects.

He said the government has also issued a circular to all ministries informing them that they do not have to wait until the budget is passed by Parliament before beginning preparatory work.

Ministries can prepare project plans, draft estimates and start procurement procedures in advance, with only the final contract award being held back until the budget is approved.

“This allows us to award contracts and commence physical work by January,” he said.

The government’s failure to fully utilize capital allocations has broader implications for Sri Lanka’s economic development.

Delays in investing in transport infrastructure, modernizing power networks and developing digital public systems can limit productivity gains, worsen existing structural bottlenecks and reduce the country’s potential for economic growth.

In the country’s fragile post-default economic environment, continued shortfalls in capital spending could also affect perceptions among international development partners and private investors.

Jayatissa said the problem was not specific to the current administration but represented a long-standing weakness in the country’s public investment system.

“This issue is not unique to our administration; it has been a persistent, long-standing systemic flaw,” he said.

He added that the government had recognized the problem several months ago and, around four months earlier, instructed ministries to begin preliminary activities ahead of the usual timetable.

The Ministry of Finance will take responsibility for facilitating the process, allowing ministries to move forward with procurement procedures up to the stage of awarding contracts, he said.