Option 2 of 8

Spend less

Reduce what the government spends on everything except the loans, and use the saving to repay.

Ways out of debt

In the house

Cut the monthly household budget: fewer takeaways, a cheaper phone plan, postpone the new sofa.

The idea

The government spends less on ministries, programmes, salaries and projects. The money saved is used to pay interest and repay loans. Spending can also be made more efficient, so the same service costs less.

How it works

  1. Decide which spending to reduce, freeze or delay.
  2. Set limits that the Treasury enforces during the year.
  3. Use the saving to raise the primary surplus.

How long

Cuts can start in the next budget. The effect on debt builds over several years.

Who has to agree

Parliament and the Treasury. Lenders often ask for it in a programme.

Who feels it first

People who use the services or are paid from the spending that is reduced.

What makes it hard

  • Debt servicing is 50% of the 2026 spending in the Act, and it cannot be cut by ministries. Everything else together is Rs 4.51 trillion.
  • Salaries and pensions are commitments that are difficult to reduce.
  • Cutting capital projects saves money now but can reduce future growth.

How people and the world may react

Households

Cuts to health, education or support payments are felt directly. Cuts to administration are less visible.

Businesses

Government is a large customer. Cutting projects and purchases reduces orders for suppliers and contractors.

Lenders and other countries

Lenders usually welcome spending discipline. Some economists warn that very deep cuts can slow the economy so much that debt does not fall as planned.

Pros and cons

Pros

  • Within the government's own control, no need to wait for the economy.
  • Can remove waste and duplication.
  • Signals discipline to lenders.

Cons

  • Services and jobs can be affected.
  • Easier to cut investment than salaries, which can hurt growth later.
  • A slower economy collects less tax, which can offset some of the saving.

A real example

Ireland, 2010 to 2013

Ireland ran an EU and IMF supported programme from December 2010 to December 2013. The IMF reported the deficit at about 7% of GDP in 2013, inside the 7.5% target, but unemployment peaked at 15.1% in early 2012 and public debt was projected at 124% of GDP in 2013.

Sources:

Try it with numbers

The starting settings show this option as a simple example. Change any slider to explore. Open the full calculator, or build a mix of options in Try your strategy.

The government keeps more before interest: a primary surplus of 4.5% of GDP.

Each year, debt as a share of GDP = last year's share × (1 + interest rate) ÷ (1 + growth of GDP in rupees) − primary surplus. Growth in rupees combines real growth and inflation. Debt starts at 96.8% of GDP in 2025 (IMF, general government gross debt). The interest rate is the Central Bank's actual interest paid in 2025 divided by central government debt at the end of 2025. This is a simple illustration with the settings you choose, not a forecast, and it cannot show shocks such as exchange rate moves or new borrowing for other reasons.

These pages describe options and what happened when countries tried them. Budgets LK does not recommend any option, and nothing here is a forecast or financial advice.