ECONOMYNEXT — Sri Lanka’s economy has reached pre-crisis levels, with real gross domestic product (GDP) projected to grow by 4.4 percent this year, exceeding earlier forecasts, but the recovery remains uneven and incomplete, the World Bank has said.
Growth is driven by strong industrial performance and steady service sector activity, the multilateral lender said in its latest Sri Lanka Development Update October 2026, titled “From Recovery to Transformation”.
Real GDP expanded by 4.7 percent in the first half of 2026 following twelve consecutive quarters of growth, returning output to 2018 levels. The primary budget surplus also rose sharply.
However, the recovery remains uneven and incomplete, as household incomes and employment continue to lag. Poverty remains high at 16.9 percent, and inflation has picked up in recent months due to higher food and energy prices.
“Reaching this milestone marks a beginning, not the end — the country needs to seize this momentum to transform its economy and create jobs,” said Gevorg Sargsyan, World Bank Group Country Manager for Sri Lanka.
Growth is projected to slow to 4.2 percent in 2027 as the initial post-crisis rebound fades and productivity remains weak.
The report warned of key downside risks, including global energy market volatility and the impact of El Niño on food security.
To move from recovery to transformation, the bank emphasized shifting growth drivers away from state spending toward private investment and exports, highlighting agribusiness as a key sector that accounts for over 40 percent of jobs and nearly 30 percent of goods exports.
“Sri Lanka can capitalize on sectors with immense potential such as agrifood, investing in the policies, infrastructure, and enabling environment that allow farmers, businesses, and investors to drive the next phase of growth,” Sargsyan said.
The World Bank called for trade policy reforms, predictable regulations, and redirecting subsidies into productivity-enhancing agricultural research and climate-smart technologies. (Colombo/Oct6/2026)