Sri Lanka’s economic recovery, while stabilising on the surface, remains fragile and uneven beneath, according to the World Bank’s Global Economic Outlook 2026. The report paints a picture of cautious optimism: fiscal discipline is strengthening, external balances are improving, and macroeconomic stability is holding yet deeper structural weaknesses continue to restrain growth and long-term resilience.
The World Bank projects Sri Lanka’s economic growth to slow to 3.5 percent in 2026 and further to 3.1 percent in 2027. This deceleration reflects entrenched inefficiencies in factor and product markets, lingering damage from the recent economic crisis, and global uncertainty that continues to dampen demand for exports. While these growth rates signal moderation, they are slightly stronger than the Bank’s mid-2025 projections, suggesting incremental improvements in policy coordination and economic management.
A key pillar supporting this recovery is fiscal consolidation. Stronger-than-expected government revenue collection has helped narrow budget deficits and ease public debt pressures. The Bank expects Sri Lanka to maintain primary fiscal surpluses over the medium term an essential condition for restoring investor confidence and stabilising debt dynamics after years of fiscal slippage.
Externally, Sri Lanka’s balance of payments position has also improved. Lower global oil prices have reduced the import bill, while remittance inflows particularly from Gulf Cooperation Council countries—remain robust. With economic activity in these labour-importing economies expected to stay resilient, remittances are projected to continue acting as a critical buffer against external financing risks. Together, these factors are expected to support sustained current account surpluses.
However, the report also underscores the scale of unresolved vulnerabilities. Structural bottlenecks continue to limit productivity growth, while demographic pressures are intensifying. Emigration especially among younger and highly skilled workers remains elevated, raising concerns about future labour shortages, skills erosion, and diminished growth potential.
The global environment presents additional risks. The World Bank warns that rising trade barriers, escalating tariffs, or uncertainty surrounding international trade policies could weaken export demand. Sri Lanka’s relatively high exposure to the United States makes it particularly vulnerable to any rollback of trade concessions or increases in tariffs, which could directly undermine growth momentum.
Compounding these challenges are unaccounted risks. The World Bank’s growth forecasts do not yet incorporate the economic impact of Ditwah, with assessments still underway. Initial estimates place the damage at $4.1 billion roughly four percent of Sri Lanka’s 2025 GDP raising fresh concerns about fiscal space and recovery timelines.
Ultimately, the report suggests Sri Lanka has moved away from crisis but not yet toward sustained transformation. Stability has been regained, but structural reform remains the defining test.
