Boosted by monetary easing, tourism, and IMF support, Sri Lanka’s economy continues its rebound, though global risks may temper gains.
Sri Lanka’s economy is projected to grow by 4.2% GDP growth in 2025, following a stronger-than-expected 4.8% expansion in the first quarter, according to Bloomberg Intelligence. This momentum reflects improving consumer and business confidence, coupled with favorable policy support and rising external inflows.
The first quarter of 2025 saw the economy build on its recovery path, with year-on-year GDP rising 4.8%, slightly below the 5.4% posted in the final quarter of 2024. Bloomberg Intelligence forecasts the full-year growth to settle at around 4.2%, following an estimated 5% increase in 2024.
Driving this recovery are several key factors: the Central Bank’s monetary easing is encouraging credit demand, while a sharp increase in tourist arrivals is contributing to services sector growth. In addition, continued support from the International Monetary Fund (IMF) is improving foreign currency liquidity and enabling critical raw material imports, which fuel industrial activity.
Domestically, fiscal policy is also playing a role. The 2025 budget raised the tax-free income threshold and boosted public-sector wages, moves expected to lift household consumption and stimulate economic activity in the near term.
Sector-wise, services grew by 2.8% year-on-year in Q1 2025, up from 2.5% in the previous quarter, with financial services benefiting from lower interest rates and increased lending. Tourism, a major revenue earner, reached record highs from January to May—an early sign of recovery in external demand.
However, risks remain. Bloomberg Intelligence cautions that external shocks—such as potential U.S. tariffs on Sri Lankan textile exports or escalated geopolitical tensions in the Middle East—could impact growth. Higher oil prices and disrupted remittances could undermine consumer spending and offset some of the expected gains.
Still, with domestic and external tailwinds aligning, Sri Lanka’s projected GDP growth for 2025 signals cautious optimism as the country navigates its path out of crisis and toward sustained economic stability.