Economic News
View all(74)CBSL Report: 2026 Growth Seen at 4-5% Amid 5% Inflation Target 📈
The Central Bank of Sri Lanka (CBSL) has released its February 2026 Monetary Policy Report, outlining a steady recovery path despite recent climate-related setbacks. • Overall Growth & Outlook The economy is projected to grow between 4% to 5% in 2026, maintaining recovery momentum. Real GDP growth for 2025 is estimated at 4.5%, slightly moderated by disruptions from Cyclone Ditwah in late 2025. • Inflation Dynamics Headline inflation is expected to accelerate and stabilize around the 5% target by the second half of 2026. While core inflation reflects strengthening domestic demand, food inflation remains elevated in the near term due to agricultural supply chain hits. • Sector & Risks • Agriculture: Impacted by Cyclone Ditwah, though re-cultivation efforts are underway to stabilize prices. • Energy & Transport: Deflation has eased; costs are expected to turn positive soon, though sensitive to global fuel prices. • Fiscal Policy: Growth may be constrained by a negative fiscal impulse from planned primary account surpluses. • Key Projections (Provisional) • 2026 GDP Growth: 4.0% – 5.0% • 2025 GDP Growth: ~4.5% • Inflation Target: 5.0% (by 2H 2026) The recovery remains subject to global geopolitical volatility and the effective implementation of domestic structural reforms.
Headline: Beyond Recovery – Urgent Call for Structural Transformation in Sri Lanka 📈
• Overall Assessment: Prof. O.G. Dayaratna-Banda warns that while Sri Lanka’s recovery from the post-2019 collapse is "rapidly" progressing—with stabilized inflation and rebounding growth—it must not be mistaken for permanent transformation. • Sector Breakdown: • Services: Now the economy's "glue," accounting for 57% of GDP and 50% of employment. • ICT/BPM & Modern Services: The transition from low-value tasks to high-complexity sectors like AI-driven analytics, fintech, and logistics is critical for productivity. • Agriculture & Industry: Productivity in these sectors is now heavily dependent on efficient, modern services. • Economic Costs of Corruption: Historical data from Prof. Indraratna (2007) highlights that public sector corruption absorbs approx. 8.5% of GDP, effectively slashing annual growth by 2 percentage points. • Key Barriers to Growth: • Red Tape: Starting a business requires navigating at least 14 government agencies, leading to institutional inertia. • Skills Mismatch: Weak broadband and outdated curricula hinder the knowledge economy. • Bureaucracy: Digitalization remains "rhetoric" as long as regulations demand physical paper over digital copies. • Future Outlook: Based on provisional analysis, lasting growth requires moving beyond "low-technology traps" toward high-value, tradable services and radical institutional honesty. 🇱🇰
## Sri Lanka’s New Economic Path: Beyond Nostalgia 📈
HNB CEO Damith Pallewatte outlines a strategic shift for Sri Lanka in 2026, moving from "volume to value" to thrive in a multipolar global economy. • Core Strategy The focus shifts from mass arrivals and bulk exports to high-value niches. Key priorities include geographic branding, value addition, and leveraging strategic shipping lanes to mitigate global tariff and energy risks. • Sector Breakdowns Agriculture: Transitioning from traditional toil to tech-driven ecosystems. Modernization (drones, IoT, AI) has reduced 4-day tasks to 90 minutes. HNB’s 'Sarusara' initiative aims to develop 30,000 agripreneurs. Tourism: Moving away from mass market targets toward high-yield wellness, eco-tourism, and adventure niches. Banking & ICT: HNB is launching a 2026–2030 plan integrating AI and Machine Learning for credit security while pursuing international expansion to diversify revenue. • Regional & Youth Focus Economic decentralization is vital. High potential is noted in Uva, Sabaragamuwa, and the Northern/Eastern provinces. The goal is to retain digitally fluent youth by connecting local skills to global value chains. • Outlook Sri Lanka must move beyond a "model of departure" to one of "staying and building," supported by strategic foreign investment and technology transfer.
ADB Re-affirms Long-Term Support and Recovery Aid for Sri Lanka 📈
The newly appointed Asian Development Bank (ADB) Country Director, Ms. Shannon Cowlin, met with President Anura Kumara Dissanayake to reaffirm the Bank’s commitment to Sri Lanka’s development and post-disaster recovery. • Strategic Commitment & Support • ADB expressed satisfaction with current program implementation and institutional coordination. • Ongoing assistance includes budgetary support and planned investments for 2026 and beyond. • A high-level visit by the ADB President is scheduled for mid-2026 to further solidify the partnership. • Disaster Recovery & Resilience • A primary focus was placed on response and recovery following Cyclone Ditwah. • Reconstruction efforts will prioritize strengthening national resilience against climate-induced disasters. • Inclusive & Sustainable Growth • President Dissanayake emphasized "People-Centred Growth," ensuring economic progress reaches vulnerable regions. • Priority given to restoring ecosystems and protecting water sources in the Central Highlands to support sustainable livelihoods. • Focus areas include digitalization of public services and enhancing the energy sector's sustainability. • Institutional Context • To date, ADB has committed US$ 12.7 Bn (499 projects) to Sri Lanka. • Recent approvals include US$ 100 Mn for financial stability and US$ 100 Mn for macroeconomic resilience (late 2025).
Sri Lanka Targets Debt Completion Amid Cyclone Recovery 📈
• Overall Progress & Stability Treasury Secretary Dr. Harshana Suriyapperuma confirmed Sri Lanka is on track to finalize external debt restructuring. Public debt has dropped significantly to 105% of GDP (mid-2025) from a 2022 peak of 145%. Macroeconomic stability remains resilient, supported by nine consecutive quarters of positive growth. • IMF & Fiscal Update The IMF EFF 5th review is set for approval in early 2026, unlocking a US$ 350 Mn tranche. • Primary Balance: Improved from a 3.7% deficit (2022) to a 3.8% surplus (2025). • Revenue: Vehicle import relaxation generated Rs. 904 Bn in taxes, doubling projections. • Reserves: Current account recorded a US$ 1.7 Bn surplus in 2025. • Debt Restructuring Breakdown Agreements now cover 99% of external debt, with 92% fully restructured. • Bilateral: Agreements signed with 9 OCC members (Japan, India, etc.) for US$ 4.2 Bn. • Commercial: 98% of International Sovereign Bonds (ISBs) were exchanged by Dec 2024. • Ratings: Upgraded to CCC+ by all major agencies post-bond exchange. • Cyclone Ditwah Impact The late-2025 cyclone caused US$ 4.1 Bn in damage (approx. 4% of GDP). • Recovery: US$ 1.62 Bn allocated in the 2026 Budget for housing and transport reconstruction. • Funding: US$ 206 Mn secured via IMF emergency financing; Rs. 8.5 Bn raised via local funds. • Sector Performance Tourism saw record arrivals of 2.34 Mn in 2025, with a strong Q1 2026 rebound. SOE reforms continue, focusing on unbundling the CEB and cost-reflective pricing.
World Bank Jobs Strategy: A Roadmap for Sri Lanka 📈
World Bank President Ajay Banga warns of a "slow burn" crisis: 1.2 billion youth entering the global workforce over 15 years, with only 400 million jobs projected. For Sri Lanka, aligning with the Bank's three-pillar strategy is critical to address its youth unemployment (20.8%) and incomplete recovery. • Economic Landscape (2025-2026) • Sri Lanka GDP growth projected at 4.6% (2025) and 3.5% (2026). • National unemployment rose to 4.3% in Q3 2025; agriculture employment fell sharply while services and industry grew. • Tourism revenue is a major driver, targeting US$ 4.3 Bn from 3 million arrivals in 2026. • Strategic Pillars for Job Creation • Infrastructure: Focus on human and physical capital. The World Bank emphasizes skills centers (e.g., in India) as models for Sri Lankan ICT/BPM and education sectors to meet market demand. • Business Environment: Streamlining regulations to empower MSMEs, which generate the majority of domestic employment. • Scaling Businesses: The IFC (World Bank arm) recently announced a US$ 166 Mn investment to support Sri Lankan agri-business and women-owned SMEs. • Sectoral Focus • Employment potential is highest in infrastructure & energy, agribusiness, primary healthcare, tourism, and value-added manufacturing. • Manufacturing PMI rose to 60.9 in late 2025, signaling expansion and increased hiring in food and beverage production.
Navy Revenue Surge via Independent Maritime Security 📈
The Sri Lanka Navy has generated US$ 598,250 (approx. Rs. 185 Mn) in foreign exchange revenue within just four months by independently facilitating Onboard Security Team (OBST) operations. • Fiscal Impact: 100% of the revenue has been remitted directly to the Government Consolidated Fund to support the national economy and public welfare. • Operational Volume: Between 03 Oct 2025 and 08 Feb 2026, the Navy successfully conducted 323 maritime security operations. • Strategic Shift: Following a July 2025 Cabinet decision, the Navy transitioned from private-sector-led models to independent operations. This move ensures sovereign control over maritime security while maximizing state revenue. • Sector Synergies: The project involves providing specialized services to foreign Private Maritime Security Companies (PMSCs), including the secure storage and transport of firearms and equipment at naval armories under Ministry of Defence supervision. • Efficiency: Leveraging existing physical and human resources, the Navy intends to expand these services with minimal additional cost, further diversifying Sri Lanka's maritime service offerings. _Note: Figures are based on official progress reports as of 12 Feb 2026._
Post-Cyclone Ditwah: Leveraging Geodata for MSME Recovery 📈
A recent study by the Institute of Policy Studies (IPS) highlights the critical role of geolocation data in coordinating disaster recovery for Sri Lanka’s micro, small, and medium enterprises (MSMEs) following Cyclone Ditwah. • Exposure Analysis Based on a survey of 2,500 MSMEs, 18.3% (460 firms) were at least moderately exposed to floods or landslides. Approximately 2.4% faced high exposure, situated directly within or within 20m of impact zones, risking severe physical damage. • Sector & Demographic Breakdown Manufacturing: Most exposed sector, comprising 38.5% of the survey sample. Trade & Retail: 14% of the sample; also faced significant supply chain disruptions. Agriculture & Fisheries: 7.8% of the sample. Vulnerability: 52.4% of businesses within 200m of impact zones are woman-owned. • Financial & Structural Risks Insurance Gap: Despite 54.3% of firms having experienced prior climate disasters, only 14% held private insurance, increasing the fiscal burden on the state. Debt Burden: 33.8% of MSMEs in proximity to impact zones carry existing loans, while 32% face active credit constraints. Awareness: 52.5% of high-risk MSMEs lack an understanding of national building standards, hindering climate resilience. • Policy Recommendations Experts urge the creation of a centralized MSME database integrated with the Department of Census and Statistics. Incorporating geocoordinates at the registration stage is seen as vital for rapid fund mobilization, reducing misallocation, and streamlining recovery. _Note: Analysis based on provisional January 2025 survey data combined with UNOSAT impact maps._
📈 CBSL Credit Survey: Lending Appetite Rises Amid SME Challenges
The Central Bank’s 4Q 2025 survey indicates a broader easing of credit conditions and a rise in lending appetite, though MSMEs face persistent hurdles. • Sector Highlights: Banking Sector: Willingness to lend increased for retail, corporate, and SME sectors due to strong liquidity and political stability. Lending to State-Owned Enterprises (SOEs) declined. Asset Quality: Non-performing loans (NPLs) fell for the 6th consecutive quarter, driven by better cash flows and recovery efforts. Loan Demand: Surged across most segments, supported by stable rates and increased vehicle imports. • The MSME Gap: Rejections: While retail and corporate rejections fell, SME loan rejections increased slightly in 4Q 2025, cited to weather impacts and repayment constraints. Concerns: Small businesses continue to report high borrowing costs and tight credit assessments despite improving macro indicators. • Overall Growth: Private Sector Credit: Rose 25.2% YoY to a record Rs. 10.2 Trillion in 2025. 2026 Outlook: CBSL expects 1Q 2026 lending to expand further, with national GDP growth projected at 4-5%.
📈 Sri Lanka Tourism Hits 80k+ Arrivals in Early February
Sri Lanka’s tourism sector maintains strong momentum, recording 80,776 arrivals in the first eight days of February—a 14% YoY increase. This performance brings the Year-to-Date (YTD) total to 358,103 visitors. • Overall Growth & Daily Trends • YTD arrivals up 11% compared to 2025. • Daily average for February stands at 10,097 visitors. • Peak daily arrival reached 10,723 on Saturday, February 7th. • Top Source Markets (Feb 1-8) • India: 12,439 arrivals (15% share). • UK: 9,283 arrivals. • Russia: 6,946 arrivals. • Germany: 5,401 arrivals. • China: 5,037 arrivals. • YTD Market Leaders • India remains the primary driver of recovery and employment in the sector with 64,500 total visitors, followed by the UK (38,823) and Russia (34,080). _Note: Figures based on provisional data for early February 2026._ ---
📈 Beyond Stabilization: The Push for 7-8% Growth
The Central Bank of Sri Lanka (CBSL) projects a 4-5% GDP growth for 2026, signaling economic stabilization. However, experts argue this "moderate recovery" may not be enough to ensure long-term prosperity without a deeper structural shift toward export and productivity breakthroughs. • Overall Outlook: Current growth is driven by post-cyclone reconstruction and consumption-led expansion. While this lifts GDP in the short term, it risks normalizing mediocrity and recreating external vulnerabilities due to high import demand for materials like cement and fuel. • Growth Targets: - Projected: 4-5% (Stabilization-led) - Required: 7-8% (Transformation-led) Sustainable growth requires shifting from "macro control" (inflation targets, reserves) to a strategy focused on what the country produces and exports. • Key Sector Risks: - Construction: Expected boost from public investment but lacks long-term productive capacity. - Manufacturing & Tradables: Need for industrial upgrading and technological learning to close income gaps. - External Sector: Widening trade deficits remain a threat if export capacity does not expand in parallel with domestic stimulus. • Strategic Gaps: Stabilization is the foundation, not the strategy. True "structural transformation" involves moving resources into higher-value ICT/BPM, apparel & textiles, and diversified exports to break the cycle of external debt and "stop-go" growth. _Summary based on current economic analysis and CBSL projections._
📈 SL Official Reserves Dip Slightly in Jan 2026
Sri Lanka’s official reserve assets saw a marginal decline of 0.2% during the first month of 2026, based on provisional data from the Central Bank of Sri Lanka. • Overall Figures: Total reserves fell from US$ 6,838 Mn in Dec 2025 to US$ 6,824 Mn at the end of January 2026. • Foreign Exchange: The largest component, foreign currency reserves, decreased by 1% YoY, dropping from US$ 6,747 Mn to US$ 6,680 Mn. • Gold Holdings: In contrast, the value of gold reserves surged by 26.8%, rising from US$ 86 Mn to US$ 109 Mn. • Key Note: The total figure includes a US$ 1.4 Bn swap from the People’s Bank of China, which remains subject to specific usability conditions.