Sri Lanka economic growth 2026 is projected to reach between 4 and 5 percent as the country benefits from low inflation, improved foreign exchange reserves, and stronger macroeconomic stability, according to the Central Bank of Sri Lanka.
Sri Lanka economic growth 2026 backed by low inflation and reserves
Sri Lanka’s economy is expected to expand by around 4 to 5 percent in 2026, supported by subdued inflation, healthier foreign exchange reserves, and reinforced macroeconomic buffers, the Central Bank of Sri Lanka (CBSL) said while outlining its policy agenda for the coming years.
Presenting the Central Bank’s outlook for 2026 and beyond, CBSL Governor Nandalal Weerasinghe said the country’s real economic activity maintained its recovery momentum throughout 2025, despite persistent global and domestic challenges. He noted that international trade uncertainty, volatile financial markets, ongoing geopolitical tensions, and climate-related disruptions at home did not derail the broader economic stabilisation process.
The governor highlighted that inflation remained well contained during 2025, enabling the Central Bank to sustain an accommodative monetary policy stance aimed at supporting growth while safeguarding price stability. Sri Lanka continues to operate under a flexible inflation targeting framework, with the official inflation target maintained at 5 percent. This framework, he said, has helped anchor expectations and rebuild confidence among businesses and investors.
Looking ahead, the Central Bank expects inflationary pressures to gradually increase during 2026, before returning to the targeted level by the second half of the year. Weerasinghe cautioned that both upward and downward risks persist, particularly from possible supply-side disruptions and reconstruction-related demand following the impact of Cyclone Ditwah. However, he emphasised that policy tools remain in place to respond swiftly to emerging pressures.
A key pillar supporting Sri Lanka economic growth 2026 is the significant improvement in the country’s external position. Gross official reserves rose to over USD 6.8 billion by the end of 2025, marking the highest level recorded since the onset of the economic crisis. This recovery has strengthened the nation’s ability to manage external shocks and maintain financial stability.
According to the Central Bank, the reserve build-up was driven by net foreign exchange purchases amounting to approximately USD 2 billion during 2025, alongside inflows from multilateral development partners. These inflows have helped stabilise the balance of payments and enhance market confidence in Sri Lanka’s macroeconomic management.
Weerasinghe said the Central Bank will continue its strategy of accumulating reserves through market-based foreign exchange purchases while allowing flexibility in the exchange rate. This approach, he explained, is aligned with reserve adequacy benchmarks and is designed to avoid artificial distortions in currency markets while strengthening external buffers over time.
The improved reserve position has also provided greater room for policymakers to focus on supporting domestic economic activity. Businesses have benefited from more predictable monetary conditions, while lower inflation has helped ease cost pressures on households. These developments, the Central Bank believes, create a more conducive environment for investment, consumption, and export-oriented growth.
Sri Lanka’s economic outlook for 2026 is also shaped by gradual improvements in fiscal discipline and structural reforms implemented under broader economic recovery programmes. While global conditions remain uncertain, particularly in relation to interest rates and trade flows, the Central Bank views the domestic economy as better positioned than in previous years to withstand external volatility.
The governor stressed that maintaining policy consistency will be critical to sustaining growth momentum. He pointed out that macroeconomic stability, credible monetary policy, and prudent reserve management are essential foundations for long-term development rather than short-term gains.
As Sri Lanka moves further away from crisis conditions, the Central Bank expects the economy to transition from stabilisation to expansion, with growth becoming more broad-based across sectors. Export performance, tourism recovery, and private sector investment are anticipated to play increasingly important roles in driving output.
While risks remain, particularly from climate events and global financial uncertainty, the Central Bank’s projections indicate that Sri Lanka economic growth 2026 will be underpinned by stronger fundamentals than in recent years. Policymakers remain focused on preserving these gains while supporting inclusive and sustainable economic progress.