Sri Lanka economic growth 2026 is projected at 4 to 5 percent as low inflation, stronger foreign reserves and improved macroeconomic buffers support expansion, the Central Bank of Sri Lanka said while outlining its policy direction for the year ahead.
Sri Lanka economic growth 2026 outlook backed by low inflation and reserves
Sri Lanka’s economy is expected to record growth of around 4 to 5 percent in 2026, supported by a stable inflation environment, improved foreign exchange reserves and stronger macroeconomic fundamentals, according to the Central Bank of Sri Lanka (CBSL).
Presenting the Central Bank’s policy agenda for 2026 and the medium term, CBSL Governor Nandalal Weerasinghe said the economy sustained its growth momentum in 2025 despite a challenging global and domestic environment. He noted that real economic activity remained resilient amid global trade uncertainty, volatile financial markets, geopolitical tensions and domestic climate-related shocks.
The governor highlighted that subdued inflation throughout 2025 enabled the Central Bank to maintain an accommodative monetary policy stance, supporting credit growth and economic recovery. Under Sri Lanka’s flexible inflation targeting framework, the official inflation target remains anchored at 5 percent, providing a clear benchmark for policy decisions.
Inflation is expected to gradually increase during 2026 and return to the target level by the second half of the year, Weerasinghe said. He cautioned, however, that both upside and downside risks remain, particularly from potential supply disruptions and reconstruction-related demand pressures following Cyclone Ditwah.
Despite these risks, the Central Bank believes macroeconomic conditions are sufficiently stable to support continued expansion. Improved policy coordination, fiscal discipline and external sector stability are expected to underpin Sri Lanka economic growth 2026, even as global conditions remain uncertain.
A key pillar supporting the outlook is the strengthening of the country’s external buffers. Gross official reserves rose to more than 6.8 billion U.S. dollars by the end of 2025, marking the highest level recorded since the onset of the economic crisis. This improvement has significantly enhanced Sri Lanka’s capacity to manage external shocks and maintain market confidence.
Weerasinghe attributed the rise in reserves to net foreign exchange purchases of approximately 2 billion U.S. dollars by the Central Bank during 2025, alongside inflows from multilateral development partners. These inflows have helped stabilise the balance of payments while easing pressure on the exchange rate.
Looking ahead, the Central Bank plans to continue building foreign exchange reserves through market-based purchases, while allowing flexibility in the exchange rate. This approach, the governor said, is aligned with reserve adequacy requirements and the broader objective of maintaining external sector stability without undermining competitiveness.
The improved reserve position also provides greater policy space to respond to unforeseen shocks, including global financial tightening, commodity price volatility or climate-related events. Analysts note that stronger buffers are critical for sustaining investor confidence and reducing vulnerability in a small open economy such as Sri Lanka.
Weerasinghe emphasised that maintaining price stability remains central to the Central Bank’s mandate. While inflation is expected to rise gradually in 2026, the CBSL aims to ensure that price pressures remain contained within the target range over the medium term, supporting real income growth and consumption.
The governor also pointed to the importance of continued structural reforms and prudent macroeconomic management in sustaining growth. He said the policy agenda for 2026 and beyond is designed to consolidate recent gains, deepen financial sector stability and support inclusive economic expansion.
Sri Lanka economic growth 2026 will also depend on how effectively the country navigates external risks, including shifts in global trade dynamics and capital flows. Domestically, weather-related disruptions and post-disaster reconstruction could influence short-term demand and supply conditions.
Nevertheless, the Central Bank’s outlook reflects cautious optimism that the economy is transitioning from a recovery phase to a more stable growth trajectory. With inflation under control, reserves rebuilt and policy frameworks strengthened, Sri Lanka enters 2026 with improved resilience compared to recent years.
As the year unfolds, economic performance will be closely monitored against evolving domestic and global conditions. For policymakers, businesses and investors, the Central Bank’s growth projection offers a signal of measured confidence, balanced by continued vigilance against emerging risks.