Sri Lanka’s latest budget signals a continued commitment to fiscal consolidation, with authorities aiming to reduce government debt relative to the gross domestic product (GDP) after outperforming targets set for 2025, according to Fitch Ratings. Strong and sustained revenue performance remains central to achieving these goals.

The recently presented budget projected a fiscal deficit of 5.1 per cent of GDP in 2026—higher than the 4.5 per cent expected in 2025 but well below the originally budgeted 6.7 per cent for 2025. The IMF later revised the 2025 deficit projection to 5.4 per cent. The primary surplus is estimated at 2.5 per cent of GDP in 2026, down from 3.8 per cent expected in 2025 but still above the 2.3 per cent target under Sri Lanka’s IMF programme. The government aims to narrow the deficit to 3.8 per cent of GDP by 2030.

Fitch noted that while the 2026 deficit estimate is wider than its own forecast of 4.6 per cent, the effect on debt dynamics could be mitigated by the stronger-than-expected 2025 performance, when the agency anticipated a 5.4 per cent deficit and a 2.4 per cent primary surplus. Staying aligned with IMF fiscal benchmarks would strengthen policymaking credibility and reinforce macroeconomic stability.

Sri Lanka’s new budget reinforces its focus on fiscal consolidation, targeting a 5.1 per cent deficit in 2026 and maintaining a primary surplus above IMF requirement.
Fitch said stronger-than-expected 2025 results may offset a wider 2026 gap.
Revenue/GDP is set to ease slightly.
Growth-supportive measures continue, but high debt and post-2027 obligations remain key concerns.

Government revenue/GDP is expected to ease to 15.4 per cent in 2026 from 15.9 per cent in 2025, still slightly above Fitch’s 2026 projection. A failure to keep tax revenue growth broadly in line with GDP growth could add pressure to Sri Lanka’s credit profile.

The budget assumes a 1.2 per cent fall in trade taxes after this year’s surge in vehicle imports, while goods and services taxes are projected to rise 3.5 per cent and income taxes 8 per cent. Fitch described the goods and services tax estimate as conservative, given expected nominal GDP growth of over 7 per cent and new tax-enhancing measures such as a lower VAT registration threshold and strengthened auditing.

Unexpectedly strong import growth could further boost revenue but also strain external balances. The 2025 fiscal overperformance was partly driven by underspending, with public investment reaching only 3.2 per cent of GDP compared with the planned 4 per cent. Persistent shortfalls in capital spending could hinder long-term growth and complicate fiscal consolidation.

Even so, the budget outlines several growth-supportive initiatives, including the revival of Colombo airport’s expansion, a LKR 342 billion (~$1.13 billion) allocation for road development, tax incentives for digital infrastructure, and planned legislation to expand public-private partnerships in infrastructure.

Fitch expects gross general government debt/GDP to decline from 100.5 per cent in 2024 to around 96 per cent in 2027—still well above the median 74 per cent for ‘CCC’ rated sovereigns. The end of the IMF programme in 2027 and higher debt-servicing obligations from 2028 pose additional medium-term risks.

Fibre2Fashion News Desk (SG)

French fashion brand Saint Laurent ranked top for the first time in the Lyst Index in the third quarter (Q3) this year, followed by Italian high fashion women’s clothing and accessory brand Miu Miu and London-based H&M Group brand COS.

Saint Laurent’s Le Loafer shoe was Q3’s second hottest product.

Saint Laurent ranked top for the first time in the Lyst Index in Q3 2025, followed by Italy’s Miu Miu and London-based H&M Group brand COS.
Saint Laurent’s Le Loafer shoe was Q3’s second hottest product.
Moving up four positions, COS saw a 147-per cent increase in searches in the quarter.
Loewe moved down six spaces to eighth rank.
American brand The Row moved up two spaces into fourth position.

The latest index reflects an unusual mix of moods, uncertainty for brands mid-transition and clarity for those doubling down on what they do best, according to an official release.

All but three brands in the table moved position this quarter, with the biggest swings coming from COS’s breakthrough into the top three—moving up four places since Q2 2025, and Spanish brand Loewe moving down six spaces to eighth position.

The data shows simplicity and restraint continue to resonate with consumers seeking understated pieces across price points.

COS saw a 147-per cent increase in searches in the quarter. The COS chunky cashmere sweater, last appearing in Q4 2024, returned as one of Q3’s hottest items.

American brand The Row moved up two spaces into fourth position, with demand up by 28 per cent in the quarter. In Q2, its flip-flop defined a summer trend; this quarter, the Eel loafer dominated searches, sitting neatly in an aesthetic dialogue with Saint Laurent’s own.

Still in fifth position, demand for Coach on Lyst rose by 29 per cent in the quarter, with strong social buzz supported by high profile sports ambassadors and strategic product placements and partnerships. The Empire bag, this quarter’s tenth hottest product, helped anchor the brand’s summer success.

Another American brand seeing digital, culture-led growth is Ralph Lauren (ninth position), rising two places with a 6-per cent quarterly increase in searches.

American brands are resonating outside of the Top 20 too. Madewell saw 34-per cent growth in the quarter, riding the wave of the mall-brand renaissance bringing brands like Gap and American Eagle back into the online conversation for younger shoppers.

Brands are effectively capitalising on moments of social media virality and tapping talent more relevant to Gen Z to reach these audiences in their digitally native context.

Burberry (13^th position) climbed four positions with a 14-per cent lift in demand in the quarter. Skims (15^th position) continues its product-driven ascent, with demand now up by 271 per cent year on year in the quarter.

Stone Island re-entered the index after four years outside the Top 20, with a strong 115-per cent quarter-on-quarter rise in demand. A long-time pillar of casual subculture, the brand garnered mainstream attention in the quarter.

Taken together, Q3’s results reveal a fashion landscape regaining balance after several volatile seasons. New creative leads are still settling, but those with a defined direction, like Saint Laurent, The Row, and COS, are proving that conviction is the key to clarity, the release added.

Fibre2Fashion News Desk (DS)