Sri Lanka’s post-crisis economic recovery has entered a decisive phase, with international financial institutions sharply divided over the country’s growth prospects for 2025. While some agencies forecast a modest rebound, others see slower progress amid global trade headwinds, tight fiscal space, and lingering structural vulnerabilities.
The differences among the Asian Development Bank (ADB), the World Bank, the International Monetary Fund (IMF), and the Central Bank of Sri Lanka (CBSL) reveal a complex picture of a nation cautiously emerging from one of its worst economic crises.
According to the ADB’s September 2025 outlook, Sri Lanka’s growth projection for 2025 remains unchanged at 3.9 percent, the same figure forecast in April. However, the regional lender has revised down its 2026 forecast, warning that the 20 percent tariff imposed by the United States on imports could weaken Sri Lanka’s export earnings and reduce domestic consumption due to potential job losses.
The ADB has also sharply lowered its inflation projection for 2025 to 0.5 percent, reflecting subdued demand and easing import costs. The Bank observed that lower inflation would enhance real household incomes and improve purchasing power, providing room for genuine wage gains while preserving the value of long-term savings and investments.
The World Bank, in contrast, maintains a slightly more conservative view, estimating growth at 3.5 percent in 2025. It attributes the slower pace to the prolonged effects of the 2022–23 economic meltdown, persistent external debt vulnerabilities, and weak private investment flows.
The Bank expects growth to moderate further to 3.1 percent in 2026, citing the need for continued fiscal and structural reforms to sustain momentum. Although inflation is expected to stay low, the World Bank warns that prolonged deflationary pressures could weigh on domestic demand and investment sentiment.
The IMF, which continues to anchor Sri Lanka’s macroeconomic reform program under its Extended Fund Facility, projects growth in the range of 3.7 to 4 percent for 2025.
In its mid-year staff assessment, the IMF reported that real GDP had expanded 4.9 percent in the second quarter of 2025, exceeding expectations, even as inflation fell below target at –1.1 percent year-on-year due to energy price declines. The Fund cautioned that while stability had returned to monetary conditions, further progress in debt restructuring and revenue reforms was essential to secure long-term growth.
In contrast, the Central Bank of Sri Lanka remains the most optimistic, projecting 4.5 percent growth in 2025. It attributes the recovery to robust domestic demand, improved investor confidence, and stable monetary conditions achieved since 2022.
The Bank noted that inflation had dropped to 1.2 percent in August, allowing room to support growth while maintaining policy stability. Public debt, however, remains a key concern, with estimates exceeding 110 percent of GDP, underscoring limited fiscal flexibility despite progress under the IMF program.
The divergence in forecasts underscores both the fragility and potential of Sri Lanka’s recovery. The ADB’s benign inflation outlook suggests improved purchasing power, but the IMF’s deflationary trend raises concerns about weak demand.
With global uncertainty, external tariff shocks, and the lingering impact of debt restructuring, policymakers face a delicate balancing act sustaining growth without reigniting instability. As the nation braces for 2026, Sri Lanka’s ability to consolidate reforms, attract investment, and restore export competitiveness will determine whether optimism or caution ultimately prevails.
