The World Bank has raised its forecast for Sri Lanka’s economic growth in 2026 to 4.4%, citing strong industrial activity and continued expansion in the services sector.
The projection was included in the latest Sri Lanka Development Update, titled “From Recovery to Transformation,” launched in Colombo yesterday. The report said Sri Lanka had reached a significant milestone by restoring its economic output to the level recorded before the crisis.
Poverty is also expected to decline gradually, falling from 16.9% in 2025 to an estimated 15.8% this year. However, the rate would remain above the pre-crisis level of 11.5% recorded in 2019.
Sri Lanka’s economy has expanded for 12 consecutive quarters, with real GDP growing by 4.7% during the first half of 2026 and returning to the output level recorded in 2018.
Despite the progress, the World Bank cautioned that the recovery remains “slow, incomplete and uneven.” It also noted that inflation has begun increasing again in recent months, driven partly by higher energy and food prices.
World Bank Acting Country Manager Stephan Massing said Sri Lanka’s economic story over the past four years had been one of recovery, while the coming four years should focus on creating new opportunities.
Speaking at the report’s launch at the World Bank Country Office in Colombo, Massing said reaching pre-crisis economic output should not be regarded as the final objective of the recovery, but rather as the beginning of a new phase focused on transforming the economy and generating more employment opportunities.
The report said Sri Lanka must now move beyond rebuilding what was lost during the crisis and establish the foundations for sustained and inclusive economic growth.
It identified a stable investment climate, improved infrastructure and increased private sector participation in key areas as important requirements for achieving that transformation.
World Bank Senior Economist Jakob Engel said economic growth is expected to moderate to 4.2% in 2027 as the post-crisis rebound loses momentum and weak productivity continues to constrain expansion.
Engel said the World Bank’s assessment is independent of Sri Lanka’s post-IMF programme, explaining that the Bank bases its projections on its own assessment of economic stability, the fiscal position, the external sector and debt sustainability.
He also said preparations were underway for the second tranche of the World Bank’s ongoing budget support programme, following the release of the first tranche in June.
“Recovery is underway but is slow, incomplete and uneven,” Engel said, stressing that economic recovery must translate into better living standards and broader opportunities for the population.
The report identified the agrifood sector as an area with considerable potential to support Sri Lanka’s next phase of economic growth, create employment and reduce poverty.
While primary agriculture contributes around 8% of GDP, the broader agrifood system, including food processing, logistics, trade and food services, accounts for approximately one-sixth of GDP and more than 40% of employment.
According to the World Bank, Sri Lanka could better utilise this potential by improving policies, upgrading infrastructure and creating a more supportive environment for farmers, businesses and investors.
The report said such reforms would be essential to turn the ongoing recovery into broader economic opportunities and ensure that the benefits of growth reach a larger share of the population.
The World Bank also noted that only 8% of funds allocated for reconstruction following Cyclone Ditwah had been disbursed, highlighting the slow pace of the recovery programme.
Meanwhile, interest payments continued to place substantial pressure on government finances, accounting for 46% of total government revenue in 2025. Although still high, this represented a significant improvement from the crisis peak of nearly 80%.
Sri Lanka’s fiscal position also strengthened during the first half of 2026, with the primary surplus increasing by 39.3%. The overall fiscal balance recorded a surplus of Rs. 9.5 billion, compared with a deficit of Rs. 406 billion during the corresponding period of 2025.
