By: Staff Writer
September 21, Colombo (LNW): Sri Lanka’s battered economy appears to be entering a new phase of stability and growth, with international investors increasingly optimistic about its long-term prospects. After years of crisis and political turbulence, the country is now regaining momentum on the back of reforms, improved governance, and recovering investor confidence.
Asia Frontier Capital (AFC) Fund Manager Ruchir Desai, writing recently in International Banker, described Sri Lanka as one of the most compelling investment destinations in Asia. “With an outlook for stable growth, a universe of exceptionally well-run companies with good corporate governance, and valuations that are still below pre-crisis levels,
Sri Lanka remains a top country pick for our AFC Asia Frontier Fund,” he said. The country currently accounts for nearly 13% of AFC’s Asia Frontier Fund, making it the second-largest holding.
Economic data supports this cautious optimism. Sri Lanka’s GDP expanded by 5% in 2024 and by 4.9% in the first half of 2025, surpassing expectations.
Growth has been fueled by domestic consumption, renewed business and infrastructure investment, and a strong rebound in tourism. Visitor arrivals are expected to reach 2.5 million this year, exceeding pre-pandemic levels and underlining the sector’s importance to the recovery. Worker remittances have also surged as the rupee stabilized, strengthening household incomes and domestic demand.
Desai recalled that when he visited Colombo in late 2022, the country was at its lowest point in decades, with the stock market trading at a price-to-earnings ratio of just four times. Since then, the Central Bank’s decisive interventions steep rate hikes, a managed devaluation, and subsequent easing as inflation cooled combined with the IMF’s Extended Fund Facility program in 2023, have helped restore credibility to the economy.
The Colombo Stock Exchange has since surged nearly 200% in US dollar terms, and remains attractively valued compared to pre-crisis levels.
The 2024 elections, which brought Anura Kumara Dissanayake and the National People’s Power coalition to power, are seen as a political inflection point. Investor confidence was reflected in the CSE’s 34.5% surge in the final quarter of 2024, followed by a further 19% gain so far in 2025. For many analysts, the decisive mandate reduced political uncertainty and opened the way for deeper reforms.
Looking ahead, tourism and logistics stand out as key growth drivers. With its deep-sea terminals and strategic geographic location, the Port of Colombo is well-positioned to become a major South Asian logistics hub. Desai argued that policies to strengthen trade and logistics could deliver long-term dividends, while Sri Lanka’s proximity to India offers another opportunity. Just as Southeast Asian economies leveraged China’s rise in the 2000s, Sri Lanka could benefit from India’s rapid economic expansion, particularly in tourism and trade.
Global uncertaintiessuch as US trade policy shift pose risks, but Desai noted Sri Lanka’s limited exposure, with exports to the United States accounting for just 3% of GDP. Instead, he stressed that Sri Lanka’s recovery is driven largely by domestic reforms and resilience.
The key challenge now, he cautioned, is to ensure that policymakers do not become complacent in the face of renewed optimism. “The stage has now been set for Sri Lanka to achieve a period of stable growth,” he wrote, “but this requires disciplined execution of reforms to secure long-term benefits for companies, investors, and the country at large.”
