Sri Lanka’s recovery under pressure in unstable global order as escalating geopolitical tensions begin to disrupt key sectors, raising concerns among industry leaders over the sustainability of the country’s fragile economic rebound in 2026.
Sri Lanka’s recovery under pressure in unstable global order amid shocks
Sri Lanka’s economic recovery, which gained momentum through 2025, is now facing renewed uncertainty as global instability reshapes trade, tourism, and logistics. At a recent business forum organised by the Sri Lanka-Italy Business Council, policymakers and private sector leaders warned that the evolving geopolitical landscape is already testing the resilience of the country’s recovery trajectory.
Italian Ambassador to Sri Lanka and the Maldives, Damiano Francovigh, noted that the global system is shifting away from a rules-based order towards a power-driven environment, with far-reaching consequences for smaller economies. He emphasised that countries like Sri Lanka must deepen regional integration and diversify trade partnerships to remain competitive. According to him, maintaining a relatively closed economic model could limit Sri Lanka’s ability to attract foreign investment, particularly at a time when global alliances and economic blocs are becoming more influential.
The discussion highlighted that Sri Lanka’s recovery under pressure in unstable global order is closely linked to its exposure to external shocks, particularly through tourism, exports, and shipping. Early indicators from the tourism sector point to emerging strain. After recording nearly 20% year-on-year growth in the first two months of 2026, the sector experienced a 17.4% decline in arrivals in the first 22 days of March. Industry estimates suggest that disruptions to airline connectivity—particularly from the Middle East—have affected nearly one-third of total inbound travel, resulting in revenue losses of around $65 million.
Despite this setback, tourism stakeholders remain cautiously optimistic. The current low season is expected to cushion the immediate impact, while a potential rebound—described as a “super summer”—could materialise if geopolitical conditions stabilise and air connectivity is restored. However, industry leaders also pointed to the absence of a cohesive national tourism strategy, which could limit the sector’s ability to capitalise on any recovery in demand.
The export sector, a key pillar of the economy, has so far demonstrated resilience, although warning signs are emerging. Brandix Group Managing Director Hasitha Premaratne explained that export volumes have remained broadly in line with forecasts, largely due to existing inventories and stable order books. However, cost pressures are intensifying, driven by rising energy prices, increased freight charges, and higher costs of petroleum-based raw materials. These Sri Lanka export challenges are expected to become more pronounced if the crisis persists beyond the second quarter of 2026.
Premaratne noted that freight costs have risen by as much as 35–40%, while some international buyers have begun requesting extended credit terms, reflecting growing uncertainty in global markets. He cautioned that while the immediate impact has been manageable, a prolonged disruption could significantly alter the outlook for export-driven industries.
Shipping and logistics have also come under pressure, with approximately 35% of global shipping routes affected by instability in key maritime choke points such as the Strait of Hormuz and the Suez Canal. Shippers Academy Colombo Founder and CEO Rohan Masakorala warned that freight and insurance costs have doubled in some cases, while port congestion is increasing across the region, including in Colombo. These global shipping disruptions are placing additional strain on supply chains and increasing operational costs for Sri Lankan businesses.
Masakorala further highlighted that while the current impact remains below pandemic levels, the situation could escalate rapidly if tensions persist. A prolonged crisis could even trigger a broader global recession, with severe implications for remittances, trade, and tourism. However, he also pointed to potential long-term opportunities, noting that increased global attention on strategic shipping routes could attract investment into Sri Lanka’s maritime sector.
The forum also underscored the need for Sri Lanka to adopt a more forward-looking and strategic approach to economic planning. Participants stressed the importance of strengthening connectivity with key markets such as India and China, particularly in aviation, where targeted incentives and partnerships with major carriers could yield quicker gains. However, experts acknowledged that such strategies require long-term planning and cannot be implemented effectively as reactive measures.
Overall, Sri Lanka’s recovery under pressure in unstable global order reflects a broader reality facing many emerging economies: the need to adapt to a rapidly changing global environment while maintaining internal stability. While the country has made significant progress in rebuilding its economy, external vulnerabilities remain a critical challenge.
As global uncertainty persists, the ability of Sri Lanka to sustain its recovery will depend on policy agility, economic diversification, and stronger integration with regional and global markets. Industry leaders agree that while risks are mounting, there remains a window of opportunity—provided that timely and strategic decisions are made to navigate the evolving landscape.