The government has earmarked Rs. 837 billion (9.3% of total budget allocations) for social protection programmes in 2026, according to the Citizens Budget published by the Ministry of Finance, Planning, and Economic Development. The figure is sizeable and growing, despite almost certainly underestimating the full scope of spending across the four pillars of the National Social Protection Policy (2024): social assistance, social care, social insurance, and labour market and productive inclusion.  It is also a starting point for considering whether current allocations match the system’s stated priorities, and whether and how future budgets might do so more effectively.

The elephant in the room: public sector pensions

This year, allocations on pensions, gratuity, and related payments for the public sector account for over 6% of the total budget, and 68% of all social protection spending (as per the classification in the citizens’ budget). (Table 1). In contrast, despite the scrutiny that Aswesuma receives, its family-based cash transfers account for 1% of the total budget. These primarily non-contributory commitments impose substantial long-term fiscal burdens. As the population ages and the working-age population shrinks, these costs will increasingly fall on a narrower base of contributors.

Table 1: Social protection – budget breakdown

Data source: Citizen’s Budget – 2026

Transitioning the existing public sector workforce into contributory schemes is likely to be met with resistance and is unlikely to proceed unless the government is willing and prepared to face unpopularity. However, it can try to curb its fiscal challenges, at least in the long term, by enrolling new public-sector recruits to contributory pension schemes, with costs shared between individuals and the state. The country attempted such a reform aimed at new entrants in 2003, only to revoke it in 2006. As the fiscal burden increases with an ageing population, such reforms are necessary, even if it is decades before it reflects in government accounts.

What works for work?

Sri Lanka aims for 7% growth at a time when the labour force participation rate has slipped to 47.4% (2024), likely reflecting ageing and migration patterns. Social protection programmes exist to safeguard households against illness, disability, old age, and other shocks across the life cycle. At the same time, programme design must ensure that incentives support labour participation among those who are able to work.

Global evidence does not indicate that cash transfers necessarily reduce incentive to work, although factors such as transfer size may play a role. Three years after Aswesuma cash transfers began, examining beneficiaries’ works transitions, if any, including differential impacts for different categories of Aswesuma beneficiaries, any movement between wage work and self-employment or different job categories, and number of working hours, is warranted.

Such analysis should be compared with the effectiveness of other programmes aimed at Aswesuma beneficiaries, such as the national empowerment programme. The current budget allocates only Rs. 4.2 billion (less than 3% of the value of cash transfers) to this programme. We can also compare the impact of other labour market focused programmes referred to in the budget, such as those earmarked for SME development. Rigorous evaluation can help determine the appropriate balance across these instruments and guide future allocations.

Coordination for more efficient budget utilization

The National Social Protection Strategy (2025-2035) sets out an ambitious agenda, proposing a wide range of programmes. The budget speech also touches on several adjacent initiatives, such as the National Campaign for Eradicating Poverty and Prajashakthi. How these programmes work together will be key to ensuring efficient use of staff time and other resources, with clear implications for budgeting.

The Strategy outlines a coordination architecture, including the establishment of a National Social Protection Committee, an inter-ministerial body headed by the President or Prime Minister, and a quarterly Inter-Ministerial Social Protection Working Group, which could act as a starting point. However, the Social Protection Policy approved by Cabinet in mid-2024 also envisaged such a committee, which was never appointed. The Strategy further describes complementary systems, including an Integrated Management Integrated System and a Unified Social Registry. These are promising, but will require strong coordination on the broader digitalisation agenda, especially with those developing foundational digital public infrastructure, such as the National Data Exchange.

What next?

Overall, the budget offers a reasonable starting point for the next phase of social protection. The issue is not the scale of spending but how it is apportioned across competing needs, especially in a context of persistent deficits. This year’s fiscal deficit is Rs. 1.7 trillion, and the total financing requirement rises to Rs. 3.6 trillion once loan-financed capital expenditure is included. Over time, Sri Lanka will need to confront legacy challenges such as the structure of non-contributory pensions, strengthen coordination across agencies, and improve the use of data and digital systems. Most importantly, we will need to evaluate programmes systematically to ensure that they reach the right groups and deliver the outcomes the country expects. Without that discipline, even large allocations will struggle to translate into meaningful progress.

By Gayani Hurulle (Senior Research Manager, LIRNEasia)