📈 Sri Lanka Economy Update: IMF 7th Review Progress & Trade Recovery

Sri Lanka continues its macroeconomic stabilization under the IMF EFF program while shifting focus to structural reforms and trade expansion. • Macroeconomic Performance • GDP Growth: Economic activity expanded by 4.2% in 2026 Q2. • Foreign Reserves: Reached US$ 6.9 Bn at end-August 2026. • Inflation: Rose to 8% YoY in August 2026 due to global oil price shocks, though expectations remain anchored. • Key Sector Highlights • Textiles & Garments: Machinery imports prioritised for automated looms and fabric processing to boost capacity in Sri Lanka's primary export sector. • Capital Goods & Industry: Over US$ 4.5 Bn imported in industrial machinery and equipment since 2024, driving a 7.3% surge in industrial activity and 3.2% growth in manufacturing. • Renewable Energy: Added 1,513 MW of solar power to the national grid (2025–Aug 2026), significantly lowering fossil fuel import demands. • Vehicle Imports: Over 800,000 vehicles worth US$ 3.8 Bn imported since 2024 lifting, generating over LKR 904 Bn in government tax revenue in 2025. • Fiscal Policy & Outlook • 2027 Budget: Scheduled for Nov 12, targeting a 2.3% primary surplus target and 13% expenditure ceiling. • Risks: Global downside risks persist from Middle East tensions, trade policies, and El Niño weather impacts.