E-Paper
Sign In
Sri Lanka targets 6% GDP growth in 2026 amid post-cyclone recovery
Sri Lanka is on track to push growth into higher gear this year
- PUBLISHED: Wed 4 Feb 2026, 5:08 PM
- By:
- Muzaffar Rizvi
- Share:
Sri Lanka is poised to clock up to six per cent gross domestic product (GDP) growth this year, driven by a surge in investment and public spending in the aftermath of Cyclone Ditwah, which lashed the island nation in late 2025, officials say.
Anil Jayantha Fernando, Minister of Labour and Deputy Minister of Finance and Planning, told Reuters in September that Sri Lanka is aiming to push growth into higher gear — up to six per cent in 2026 — backed largely by record government capital expenditure. Sri Lankans and investors, he said, should remain “hopeful” as the country pulls itself out of the doldrums following the economic crisis of 2022, the worst since independence.
Recommended For You
"We should not really exaggerate (and say) that next year everything would be fantastic and your livelihood would be totally changed, but we are telling the people and the world and investors, be hopeful," Fernando said.
"Next year ... we will need to go for five to six per cent growth. We will aim for that. In the long run, after five years, we target to maintain an average GDP growth that emerging countries are maintaining. That is around six to seven per cent."
Weighing the tailwinds from reconstruction activity against headwinds such as rising inflation, the Central Bank of Sri Lanka forecasts growth of four to five per cent in 2026.
In a recent monetary policy report, the central bank projected that the economy could expand by 4.5 per cent in 2025, despite risks tied to US tariff measures. This outlook is more upbeat than the World Bank’s estimate of 3.5 per cent growth last year, compared with a five per cent rebound in 2024 —marking a significant turnaround from the crippling financial crisis three years ago.
The South Asian nation needs to build resilience for macro stability, the central bank Governor Nandalal Weerasinghe said recently, adding that monetary authorities would manage liquidity to align short-term rates with policy. The central manitained its overnight policy rate at 7.75 per cent
Sri Lanka’s economy grew 5.4 per cent year-on-year in the third quarter of 2025, up from 4.9 per cent in the previous quarter, according to official data — clear signs that the recovery is gathering steam. The agriculture sector expanded 3.6 per cent, industrial output surged 8.1 per cent, and services rose 3.5 per cent, the Census and Statistics Department reported.
While the central bank pegs growth at 4.5 per cent this year, some analysts warn the pace may lose momentum, potentially slowing to around three per cent in 2026 as the fallout from Cyclone Ditwah ripples through the economy.
“We are expecting a 0.5%–0.7% contraction due to the cyclone. However, the blow will be softened as reconstruction efforts — likely to cost around $2 billion — will also give growth a shot in the arm next year,” said Shehan Cooray, Head of Research at HNB Stockbrokers.
Sri Lanka, already under a four year, $2.9 billion International Monetary Fund (IMF) programme, has sought an additional $200 million in emergency financing from the global lender. The IMF expects the economy to grow 3.1 per cent in 2026.
Dr Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, recently outlined how Sri Lanka has performed against the five key pillars of the IMF programme:
Revenue-based fiscal consolidation, supported by tax reforms and strengthened social safety nets.
Restoring debt sustainability through fiscal adjustment and debt restructuring.
Maintaining price stability and rebuilding foreign exchange reserves.
Safeguarding external stability.
Combating corruption via a comprehensive anti-corruption reform agenda.
“Sri Lanka has come out of the crisis stabilising its economy across three dimensions,” Dr Srinivasan stated referring to Sri Lanka’s growth, revenue, and inflation. He highlighted that growth ‘bounced back decisively’, turning positive within six months of the programme and recently averaging about five per cent annually.
On fiscal performance, the IMF Director noted a ‘significant turnaround’ as tax revenue has doubled from a critically low 7.3 per cent of GDP to 14.8 per cent in 2025.
Furthermore, inflation has dropped ‘in a very convincing manner’ from approximately 70 per cent to the current 2-3 per cent range.
“One would hope that in the next few quarters, it will reach the central bank’s target of five per cent. Overall, the IMF programme for Sri Lanka has delivered on many of its objectives,” Dr Srinivasan said. “There is still a long way to go in terms of securing strong, sustained, balanced growth, but the programme is off to a very good start. All of you, the authorities, and the people of Sri Lanka need to be congratulated for the progress made so far,” he said.
