The Sri Lanka growth story is gaining momentum, with Asia Frontier Capital Fund Manager Ruchir Desai highlighting reforms, political stability and tourism recovery as drivers of sustained expansion through 2025.
Sri Lanka growth outlook strong as AFC fund manager cites reforms, tourism and investor confidence
The Sri Lanka growth phase is gathering pace after years of economic turbulence, according to Asia Frontier Capital Fund Manager Ruchir Desai. Writing in International Banker, Desai said the country now offers compelling opportunities for investors as corporate governance improves, valuations remain attractive and reforms take hold.
Desai pointed out that GDP expanded by 5 percent in 2024 and 4.9 percent in the second quarter of 2025, beating expectations. He attributed this performance to strong domestic consumption, infrastructure spending, a rebound in tourism and business investment. With tourism arrivals forecast to reach 2.5 million in 2025, exceeding pre-pandemic levels, he said the sector is central to Sri Lanka’s recovery.
He credited the Central Bank with stabilising the rupee and curbing inflation through decisive action in 2022, while the IMF programme approved in March 2023 helped restore international confidence. Falling inflation later allowed monetary easing, which supported the economy and lifted market sentiment in 2024. Worker remittances also strengthened as stability returned, further supporting the Sri Lanka growth trajectory.
The Colombo Stock Exchange has surged nearly 200 percent in US dollar terms since early 2023, with the All-Share Index gaining 34.5 percent in the final quarter of 2024 and almost 19 percent so far in 2025. Despite the rally, Desai argued that valuations remain below pre-crisis levels, leaving room for further upside. He identified the decisive 2024 election results, which brought Anura Kumara Dissanayake and the National People’s Power coalition to power, as a key inflection point for investor confidence.
Looking ahead, Desai said tourism and logistics are the most promising areas. He highlighted the Port of Colombo’s deep-sea terminals and strategic location, arguing that better infrastructure and supportive trade policies could strengthen Sri Lanka’s role in South Asia. He also stressed that the country can benefit from India’s rapid expansion, drawing parallels with how Southeast Asia leveraged China’s rise in the 2000s.
Although global risks remain, particularly around US trade policy, Desai noted that Sri Lanka’s exposure is relatively limited, with exports to the US accounting for only 3 percent of GDP. He emphasised that the drivers of the recovery are domestic and that resilience shown in recent years has positioned the country for sustainable growth.
“The stage has now been set for Sri Lanka to achieve a period of stable growth,” he said, urging policymakers to continue reforms, strengthen institutions and avoid complacency despite the renewed optimism.