Economic News
View all(77)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.
## 📈 Jan. Tourism: Record Arrivals Meet Revenue Realities
Sri Lanka's tourism sector started 2026 with a paradox, hitting an all-time high in visitor numbers while witnessing a contraction in total foreign exchange earnings. • Overall Figures (Jan 2026) Earnings: US$ 378.5 Mn (Down 5.6% YoY). Arrivals: 277,327 (Up 9.7% YoY) — the highest monthly total on record. Monthly Growth: Revenue rose 23% compared to December 2025, driven by the winter peak. • The Spending Gap The revenue dip is largely attributed to a downward revision in estimated daily tourist spending. Following an SLTDA survey, average daily expenditure was adjusted from US$ 172 to US$ 148. This trend marks the 5th revenue decline in the last 7 months, signaling a shift toward lower-spending traveler profiles. • Top Source Markets India: 52,061 arrivals (19% share). UK: 29,540 arrivals (11% share). Russia: 27,134 arrivals (10% share). Other key markets: Germany, China, and France. • Economic Context & Outlook Tourism currently accounts for nearly 3% of the economy. While the 2025 total earnings reached US$ 3.22 Bn (up 1.6% YoY), analysts emphasize that increasing high-value tourism is vital to strengthening the national forex position. The government maintains a target of 3.0 million arrivals for 2026 to offset lower per-capita spending.
📈 Private Sector Credit Hits 8-Year High of Rs. 10.2 Trillion in 2025
Total outstanding private sector borrowings surged by 25.2% YoY to reach Rs. 10,212 Bn in 2025, marking a significant peak in credit expansion. • Credit Breakdown Domestic Banking Units: Rose 27.4% to Rs. 9,630 Bn. Overseas Banking Units: Declined 2.4% to Rs. 581.8 Bn. December Monthly Trend: Borrowings hit a 7-month low of Rs. 182.80 Bn post-Ditwah, following a record peak of Rs. 262.6 Bn in November. • Government & SOE Lending Net Credit to Government: Remained largely flat, up 0.2% to Rs. 8,285.2 Bn. Public Corporations & SOEs: Credit fell sharply by 20.9% to Rs. 520 Bn, indicating reduced reliance on the banking sector. • Economic Outlook & Indicators GDP Forecast: CBSL projects 4-5% growth in 2026, driven by private credit and easing financial conditions. Inflation: CCPI remained steady at 2.1% in Dec 2025; projected to converge to the 5% target by H2 2026. Market Liquidity: CBSL recorded net FX purchases of US$ 1.99 Bn in 2025, injecting Rs. 788.9 Bn in rupee liquidity. • Growth Drivers Expanding activity in vehicle imports and post-cyclone rebuilding are expected to sustain the current momentum in private sector credit.
📈 Worker Remittances Hit Record High in January 2026
• Monthly Inflow: Surged to US$ 751.1 Mn in January 2026, marking a 31.1% YoY increase and surpassing the previous January record of US$ 729.1 Mn (2018). • Growth Trends: While up significantly YoY, inflows saw a 17% seasonal decline compared to December 2025. • Historical Context: Follows a record-breaking 2025, where annual remittances hit US$ 8.07 Bn (+23% YoY), the highest ever recorded in Sri Lanka. • Labor Migration: Despite a slight 1.2% YoY dip in departures (310,915 workers in 2025), remittance values rose, indicating higher average earnings and increased trust in formal banking channels. • Economic Impact: Remittances remain the largest source of foreign exchange, crucial for domestic consumption and external balance recovery following the 2022 crisis. • Policy Drivers: Sustained growth is attributed to the CBSL's move away from parallel exchange rates, discouraging informal channels like Undiyal and Hawala.