Sri Lanka GDP growth 2026-27 is expected to slow from recent highs as structural constraints and global uncertainty weigh on momentum, even as stronger revenue performance supports fiscal consolidation, according to the World Bank’s latest economic outlook.
Sri Lanka GDP growth 2026-27 outlook shaped by reforms and export demand
Sri Lanka’s economic expansion is expected to enter a slower phase over the next two years, with growth moderating after a stronger rebound in 2025. According to the World Bank’s Global Economic Prospects report released in January 2026, the country’s gross domestic product is projected to expand by 3.5 percent in 2026 and ease further to 3.1 percent in 2027, marking a gradual deceleration from earlier recovery-driven growth.
The World Bank estimates that Sri Lanka recorded growth of 4.6 percent in 2025, reflecting improved macroeconomic stability following the depths of the economic crisis. That recovery was supported by easing inflation, stabilising financial conditions, and the resumption of economic activity across key sectors. However, the report cautions that sustaining growth at elevated levels will be challenging without addressing deeper structural weaknesses.
According to the assessment, the anticipated slowdown in Sri Lanka GDP growth 2026-27 reflects a combination of domestic and external factors. Structural impediments continue to constrain productivity, including inefficiencies in factor markets and rigidities in product markets that limit competition and innovation. The lingering effects of the economic crisis have also left scars on investment, labour participation, and household balance sheets, reducing the economy’s capacity to accelerate quickly.
External conditions add further complexity to the outlook. Global economic uncertainty is expected to dampen demand for exports, particularly in advanced and emerging markets that remain sensitive to inflation trends, monetary policy tightening, and geopolitical risks. For Sri Lanka, which relies heavily on export earnings and external inflows, softer global demand poses a constraint on growth potential in the near term.
Despite the moderated growth outlook, the World Bank highlights a more encouraging development on the fiscal front. Strong revenue performance is expected to support continued reductions in fiscal deficits and public debt levels. Improved tax collection and reforms aimed at broadening the revenue base have strengthened government finances, providing a more stable foundation for macroeconomic management.
This fiscal consolidation is seen as critical for restoring confidence and reducing vulnerabilities. Lower deficits and a declining debt trajectory can help ease financing pressures, support financial stability, and create space for targeted public investment. Over time, these improvements could help offset some of the structural constraints weighing on growth.
The broader global context remains mixed. The World Bank projects global growth to remain broadly steady over the next two years, easing to 2.6 percent in 2026 before picking up slightly to 2.7 percent in 2027. While this outlook suggests resilience in the global economy, it also points to a subdued environment that may limit export-led growth opportunities for smaller, open economies such as Sri Lanka.
For policymakers, the challenge lies in converting macroeconomic stabilisation into more durable and inclusive expansion. Addressing structural inefficiencies, improving the investment climate, and strengthening human capital will be essential to lifting potential growth beyond the modest rates projected for 2026 and 2027. Without such reforms, growth is likely to remain constrained, even in a stable global environment.
From a medium-term perspective, Sri Lanka GDP growth 2026-27 will depend not only on external conditions but also on the pace and consistency of domestic reforms. Continued progress in fiscal management, coupled with measures to enhance productivity and competitiveness, could help mitigate the impact of global headwinds and support a more resilient growth path.
While the projected slowdown signals a more cautious phase for the economy, the World Bank’s outlook suggests that the foundations for stability are strengthening. The focus now shifts from recovery to reform execution, as Sri Lanka seeks to translate improved fiscal discipline and macroeconomic balance into sustainable long-term growth.