Sri Lanka is entering a new phase of economic recovery, with Central Bank Governor Dr. Nandalal Weerasinghe urging foreign investors to take a fresh look at the country as macroeconomic stability, policy discipline and private investment prospects improve. His comments come as Sri Lanka renews its investment promotion efforts in Australia after nearly nine years.
Sri Lanka’s recovery, policy stability and growth prospects strengthen its investment case
“For anyone to benefit from the future steady growth that we are seeing over the last years and next couple of years, this is the time,” Dr. Weerasinghe told Bloomberg Television’s The Asia Trade programme, highlighting the opportunities emerging as the country moves further away from the instability of its economic crisis.
The Central Bank, Securities and Exchange Commission, Colombo Stock Exchange (CSE) and the stockbroking industry are conducting ‘Invest Sri Lanka’ forums in Sydney and Melbourne this week. The roadshow is intended to reconnect Sri Lanka with Australian investors while presenting the country’s improving economic fundamentals and investment opportunities.
Dr. Weerasinghe said the economy was “recovering nicely” following the crisis and described growth of around 5 percent as a positive outcome. Sri Lanka has maintained growth close to that level during its post-crisis recovery, although the Central Bank expects economic activity to moderate during the second half of this year.
According to the Governor, growth could ease to between 4 percent and 5 percent during the second half as tighter monetary conditions and higher prices affect economic activity. Growth is then expected to move back towards the economy’s potential rate of around 5 percent from next year.
For investors, the shift represents a significant change from the conditions that prevailed during the economic crisis. Sri Lanka is now seeking to build on greater currency stability, more disciplined monetary and fiscal policies and increased private-sector participation.
The rupee experienced renewed pressure in April and May as higher global oil costs increased demand for foreign exchange. However, Dr. Weerasinghe said the currency had subsequently stabilised and was gradually appreciating. The improvement followed the Central Bank’s 100-basis-point monetary tightening in May, which lifted the policy rate to 8.75 percent.
The move was designed to contain rising inflation, rapid private-sector credit expansion and pressure on the foreign exchange market. The Governor said the impact of those measures was becoming increasingly visible, with credit growth beginning to slow and pressure on the currency easing.
Inflation, however, remains a key risk to the recovery. Colombo inflation accelerated to 7.3 percent in July from 6.8 percent in June, moving further above the Central Bank’s 5 percent target following increases in domestic energy prices.
Sri Lanka remains particularly vulnerable to global energy prices because it is a net energy importer, with imported fuel playing an important role in transportation and thermal power generation. Dr. Weerasinghe said the current inflationary shock could be managed if global oil prices remained around US$80 a barrel, which is part of the Central Bank’s baseline assumptions for the remainder of this year and into next year.
He cautioned, however, that a significant upside surprise in oil prices could create another challenge for the economy. The Governor described the May monetary tightening as “proactive and sharp”, saying it was intended to anchor inflation expectations, slow excessive credit growth and prevent an energy shock from becoming entrenched in domestic prices.
The ability to absorb such external pressures without returning to the severe foreign exchange and balance-of-payments difficulties experienced during the crisis is now an important part of Sri Lanka’s investment proposition.
The country has also continued to advance its International Monetary Fund-backed reform programme. In May, the IMF Executive Board completed the combined fifth and sixth reviews under Sri Lanka’s Extended Fund Facility, unlocking approximately US$695 million and taking total programme disbursements to around US$2 billion. Another review is expected around November or December, with Sri Lanka targeting completion of the four-year programme during the second half of 2027.
Macroeconomic stabilisation is only one element of the investment equation. Sri Lanka is increasingly focused on converting that stability into stronger foreign direct investment after years of relatively modest inflows compared with the country’s economic potential.
There are already signs of progress. Foreign direct investment reached US$1.06 billion in 2025, representing a 72 percent increase from the previous year, according to Board of Investment data. Manufacturing accounted for 46 percent of the inflows, followed by port development at 26 percent and tourism at 11 percent.
The BOI approved 146 projects worth US$1.91 billion during 2025, including an expected US$896 million in foreign capital. The Government has set a target of attracting US$1.5 billion in foreign direct investment during 2026, indicating its intention to make investment a more important driver of the next phase of economic growth.
The capital market is also being positioned as part of the investment pitch. Australia was among the top 10 sources of foreign investment into the Sri Lankan stock market by the end of 2025, while the sizeable Sri Lankan diaspora in Australia represents another potential source of investment.
The Colombo Stock Exchange has highlighted the relatively competitive valuation of Sri Lankan equities, with the market trading at a price-to-earnings multiple of around 11.2 times ahead of the Australian investor roadshow.
For Sri Lanka, the challenge now is to turn improved stability into sustained investment, productivity and employment. The Government and financial authorities are seeking to demonstrate that the reforms introduced after the crisis can provide a foundation for longer-term growth.
Dr. Weerasinghe’s message to investors is therefore centred not simply on the recovery already achieved, but on the opportunities that could emerge from the next stage of that recovery. With growth expected to remain near its potential rate, inflation gradually moving towards the target and foreign investment showing stronger momentum, Sri Lanka is attempting to reposition itself as a market where investors can participate in the country’s next phase of economic development.