Sri Lanka’s business sector displayed resilience in August 2025, with both manufacturing and services recording strong expansion, according to the latest Purchasing Managers’ Index (PMI) released by the Central Bank. While manufacturing maintained momentum despite global supply chain delays, the services sector continued to outpace expectations, fuelled by robust domestic demand and tourism-led recovery.

The PMI for Manufacturing registered 55.2 in August, signaling continued growth, though at a slower pace compared to July. All key sub-indices new orders, production, employment, and stock of purchases remained above the neutral 50 threshold. 

The food and beverage segment was the primary driver, reflecting higher seasonal demand and steady domestic consumption. The employment sub-index also stayed positive, highlighting favourable labour market conditions in the sector. However, delays in international shipping led to longer supplier delivery times, underscoring lingering vulnerabilities in global trade flows.

Manufacturers remain cautiously optimistic about year-end targets, with industry associations projecting output growth of 4–5% in 2025, provided raw material imports remain stable. Export-oriented apparel and rubber product manufacturers, however, continue to face weaker demand from Western markets due to global economic slowdowns. 

Analysts warn that sustaining competitiveness will depend on easing import restrictions, reducing energy costs, and improving logistics efficiency.

In contrast, the Services PMI surged to 68.9, marking one of the strongest expansions in recent years. Growth was broad-based, led by wholesale and retail trade, financial services, and tourism-related sectors such as accommodation and food and beverages.

 August’s record tourist arrivals of nearly 200,000 visitors, mostly from India, China, and Europe, provided a significant boost to hospitality and personal services. Financial services also strengthened, reflecting increased lending and improved investor confidence.

New business generation in services climbed notably in August, while recruitment trends pointed to higher demand for skilled labour across banking, retail, and IT-enabled services. The slight decline in backlogs of work suggests companies are meeting demand more efficiently, aided by digitalization and productivity improvements.

Looking ahead, Sri Lanka’s services sector is expected to remain the primary growth engine for the economy in 2025, with government targets of 2.5 million tourist arrivals by year-end appearing achievable. The IT and business process outsourcing (BPO) industry is also projected to expand by double digits, reinforcing its role as a foreign exchange earner.

While the services sector outpaces manufacturing, economists caution that balanced growth is crucial for long-term stability. Strengthening manufacturing competitiveness through policy reforms and investments in export diversification will be essential to meet Sri Lanka’s overall GDP growth target of 3% in 2025.

Sri Lanka, home to some of the world’s highest-quality vein graphite, is once again at a crossroads in revitalising its graphite industry. 

The government’s recent decision to seek investors to develop the Kahatagaha mine under a public-private partnership marks a significant policy shift. 

Minister Nalinda Jayatissa confirmed that the state will retain ownership while private partners will be invited to invest in exploration, processing, and value addition. 

The move is seen as an attempt to inject capital and modern technology into an industry that has underperformed in recent years.

Kahatagaha Graphite Lanka Limited, the state-owned operator of the 102-acre mine, remains one of Sri Lanka’s oldest industrial assets. 

It produces graphite primarily for export markets, but officials admit that outdated exploration technology has hindered accurate reserve assessment and large-scale commercial development. 

The government hopes fresh investment will help unlock deeper veins, improve processing, and diversify into high-value graphite products essential for global electric vehicle batteries, renewable energy storage, and electronic components.

Despite the strategic importance of graphite globally, Sri Lanka’s export earnings from the mineral remain modest. According to trade data, graphite exports generated around US$13 million in 2024, a figure largely unchanged from the past three years. 

By mid-September 2025, export earnings are estimated at just under US$10 million, raising doubts about whether the country can break past the stagnation seen since 2020. 

This is particularly concerning as global demand for battery-grade graphite has surged, with major producers like China and Mozambique capturing larger market shares.

Industry insiders point to several systemic challenges. First, the sector lacks a clear national strategy for value addition. Most exports are in raw or semi-processed form, depriving the country of higher margins available from refined graphite or spherical graphite used in lithium-ion batteries.

 Second, the licensing system has been criticised as opaque and prone to malpractice. Several small-scale operators have allegedly exploited loopholes to secure export permits without proper investment in processing facilities, contributing to inefficiencies and underreporting of revenue.

Experts argue that Sri Lanka risks being left behind unless urgent reforms are introduced. A stronger regulatory framework, greater transparency in issuing exploration and export licenses, and incentives for downstream processing could help attract serious investors. 

The government’s pledge to protect existing jobs at Kahatagaha is politically important, but analysts stress that modernisation must not be delayed by bureaucratic caution.

Comparisons with past performance underscore the missed opportunities. In the late 1970s, graphite exports brought in more than US$25 million annually, even without today’s advanced industrial demand. Adjusted for inflation, current export earnings reflect a steep decline in global competitiveness.

For Sri Lanka, the choice is clear: either continue exporting raw graphite with limited gains or move decisively toward value addition and industrial partnerships. If the Kahatagaha experiment succeeds, it could set the tone for broader reforms. 

But without a crackdown on malpractice and a transparent investment regime, the industry risks repeating decades of stagnation, missing the graphite boom now reshaping global supply chains.

Sri Lanka expects Chinese energy giant Sinopec to begin construction on a $3.7 billion oil refinery this year, while negotiations continue over the company’s request for expanded access to the domestic fuel market, Energy Minister Kumara Jayakody said on Tuesday.

The refinery, approved in 2023, will be located near the Hambantota port—a Chinese-built and operated facility in southern Sri Lanka—and will have the capacity to process 200,000 barrels of crude oil per day. “The land has already been allocated, and the other facilities are in place. The government shares the same expectation that the project will start this year,” Minister Jayakody stated.

Deputy Economic Development Minister Anil Jayantha Fernando noted that the refinery could take about three years to complete.

Fuel Market Access Under Negotiation

Sinopec has pressed for greater local fuel market access as a condition for project feasibility. While Sri Lanka initially planned for only 20% of refinery output to be sold domestically, officials are now considering raising the figure to 40%, according to Minister Jayakody and government sources.

“The point being negotiated is whether it should be 30%, 40%, or another figure,” said Arjuna Herath, Chairman of the Board of Investment of Sri Lanka. “There is strong commitment to work this out.”

A Sinopec spokesperson declined to comment.

Parallel Expansion of State-Run Refinery

In addition to the Sinopec project, Sri Lanka plans to invest $3 billion in expanding its state-owned refinery at Sapugaskanda, near Colombo, from its current 38,000 barrels per day capacity to 150,000 barrels per day.

The expansion, to be carried out by Ceylon Petroleum Corporation, is expected to begin next year and be completed within two to three years, Minister Jayakody said. Sinopec, along with companies from India, China, and Qatar, has expressed interest in the tender, which closes on September 26.

Geopolitical Significance

Sri Lanka’s strategic location along major maritime routes has heightened geopolitical competition between China and India, both investing heavily in infrastructure and energy to strengthen their presence in the Indian Ocean.

“Our country’s location is very important from a geopolitical standpoint,” Minister Jayakody emphasized. “Most sea routes pass nearby, giving Sri Lanka natural advantages in global trade and energy security.”

Chief Secretary of the Western Province, K.G.P. Pushpakumara, announced that a concessional loan scheme will soon be introduced to support micro and small-scale entrepreneurs in the province.

Speaking at the Colombo District Coordination Committee meeting, Pushpakumara revealed that the loan scheme will offer the following terms:

• Interest rate: 3%
• Maximum loan amount: Rs. 3 million
• Repayment period: 7 years, on a diminishing balance basis

He further noted that additional details regarding the scheme will be communicated through the Divisional Secretariats.

Meanwhile, Minister of Transport, Highways, Ports, and Civil Aviation Bimal Rathnayake announced that the long-awaited expansion and development of the High-Level Road will commence next year.

Minister of Justice and National Integration, Harshana Nanayakkara, announced that special mediation boards (Samatha Mandala) dedicated to handling financial disputes will soon be introduced in a bid to reduce the number of such cases being brought before the courts.

As part of the first phase, these dedicated mediation boards will be established in the districts of Colombo, Gampaha, Anuradhapura, Polonnaruwa, Kandy, and Monaragala, the Minister stated.

He made these remarks while attending a program held at the Mediation Boards Commission to mark National Mediation Boards Day 2025.

Minister Nanayakkara highlighted that over Rs. 1 billion has been allocated to the Mediation Boards Commission under the 2025 budget, strengthening its operations. In addition, special mediation boards for land disputes have already been set up in 16 districts, while the newly introduced financial mediation boards aim to ease the burden on the courts by settling such disputes outside the judicial system.

The Minister further noted that over 200,000 disputes are referred to mediation boards each year. With the strengthened process, an additional 200,000 cases currently pending in courts are also expected to be reduced annually.

Showers will occur at times in Western, Sabaragamuwa, Central, Northwestern and Northern provinces and in Galle and Matara districts. 

Showers or thundershowers will occur at several places in the other areas of the island after 1.00 p.m. 
Fairly heavy falls above 50 mm are likely at some places in the island.

The general public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.