ECONOMYNEXT – Sri Lanka has planned reforms in the public procurement system and alignment of budget and procurement timelines among key measures to speed up the spending under planned projects with capital expenditure allocated in annual budget, President Anura Kumara Dissanayake said.
Dissanayake, also the island nation’s Finance Minister said the current procurement guidelines have become a barrier for public investment projects implemented through budget-allocated capital expenditure.
Sri Lanka has spent less than 30 percent or only around Rs.385 billion of this year’s capital spending of Rs. 1,380 billion through the first nine months of this year, two government sources have told EconomyNext.
Sri Lanka’s chronic failure to utilize its full budgetary allocations for capital investment reflects deep-rooted structural inefficiencies in public financial management and project execution, analysts and economists say.
“Our upcoming budget plans for public capital expenditure of around 2 trillion rupees (Rs.2,000 billion). Compared to when we took office, this represents a massive increase,” President Dissanayake told the gathering at the launch of the Sri Lanka Economic and Investment Summit 2026 on Monday (12).
He said his administration utilized 76 percent of the allocated capital expenditure last year. However, critics have said that this included some past loan repayments for the central highway project as well.
“Our procurement system was fundamentally built on the mindset that the state apparatus is susceptible to corruption. We created layer upon layer of regulations, and the ultimate result is that the rules have become so restrictive that nothing can get done. It reached a point where the rigidity paralyzed execution.”
“We are actively focusing on redesigning procurement mechanisms tailored for these distinct sectors,” he said, citing the current procurement system was designed merely for purchasing physical goods and there were difficulties in formulating criteria when procuring services like global promotional campaign or repairs of defence equipments.
“Our objective is to identify these specialized domains and formulate modern procurement systems. How do we procure complex software systems? We need new procurement protocols,” he said.
“Additionally, we must operate competitively in commercial markets. SriLankan Airlines, for example, how does it procure its operational requirements while staying competitive in the market? It requires flexible, modern procurement mechanisms.”
“Defense procurement is another area. We have a fleet of helicopters that cannot undergo timely repairs because the procurement cannot be awarded within the financial year. Funds get allocated, but if the procurement isn’t finalized within that year, the allocation lapses.”
Analysts warn of lower economic growth in the future if the government fails to implement its planned capital investment projects.
The government has repeatedly said most of the spending occurs in the last quarter of the year.
Year after year, bureaucratic delays, protracted procurement disputes, politicized project selection, and a lack of technical expertise within line ministries leave a significant portion of capital expenditure unspent on the Treasury books.
This capital under-utilization carries severe long-term repercussions for the island’s economic trajectory.
By failing to deploy allocated funds into critical infrastructure such as transport networks, modernized power grids, and digital public systems, Sri Lanka suffers from lower productivity growth and worsening structural bottlenecks as well as a decline in overall gross domestic product (GDP) potential.
Procurement Timing
“Previously, the practice was that only after the budget was presented and formally passed, and after the Treasury allocated the funds to the respective Ministry Secretaries, would the procurement process commence,” President Dissanayake explained.
“Consequently, procurements routinely dragged on until August or September before reaching finalization.”
“We have changed that. For major procurements, the Treasury Secretary guarantees funding ahead of time within 2026. For instance, take the Kurunegala–Galewela expressway. Funds will officially be allocated in the 2027 budget, but we have provided Treasury assurance to the Road Development Authority that the funds will be granted in 2027.”
“This allows them to call for tenders, evaluate bids, and select contractors right now. Once the budget is passed in December, we can award the contract directly in January. Work can commence immediately at the start of 2027.”
The President also said Sri Lanka is exploring e-procurement to accelerate the process while addressing professional capacity in the public sector.
“Our public service is currently not attractive enough to recruit and retain high-caliber technical professionals. We face significant deficits in recruiting IT specialists, engineers, and executive management within the standard state salary framework,” he said.
“To attract specialized talent, we must institute specialized, competitive compensation packages. Otherwise, we cannot attract this talent.”
“We are managing a 2-trillion-rupee capital portfolio, running vast services across education and healthcare, yet the state is constrained by rigid salary scales that deter top professionals.”
“When we established GovTech, we were able to bring in leading IT experts by offering specialized salary scales. We must extend this approach to other critical domains. Can we attract a top-tier civil engineer under standard civil service pay? No, because the private sector creates more lucrative opportunities and pays substantially better.”
In a fragile post-default macroeconomic climate, the persistent shortfall of public investment sends a negative signal to international development partners and private investors, analysts say. (Colombo/October 13/2026)