The Asian Development Bank’s (ADB) flagship economic publication, the Asian Development Outlook (ADO) April 2025, forecasts Sri Lanka’s recovery to continue at a moderate growth of 3.9% in 2025 and 3.4% in 2026 following the strong rebound in 2024.
Economic recovery that began in the second half of 2023 continued across all sectors in 2024. Inflation decelerated significantly in 2024 following major cuts in energy prices. Credit to the private sector picked up, reserves continued to build up, while tourism and remittances inflows remained strong. ADB expects recovery to continue in 2025 and 2026.
As uncertainties from elections and debt restructuring fade, improved investor confidence will support private investment, although consumer demand will remain sluggish amid expected rising inflation. Downside risks to the growth outlook include trade uncertainty, including recently announced U.S. tariffs on imports from Sri Lanka, loss of reform momentum, and macroeconomic policy slippages.
"Difficult policy reforms are yielding significant improvements in the economy following the recent severe crisis," said ADB Country Director for Sri Lanka Takafumi Kadono. "We are pleased to observe that Sri Lanka’s economy has stabilized and is progressing toward debt sustainability. It is essential to sustain reform efforts to mitigate debt vulnerability in the medium term and to establish a foundation for sustainable recovery, resilience building, and growth revival."
Despite recent progress in fiscal discipline and debt restructuring, debt vulnerability remains high. Reducing debt to a sustainable level will take time, with the public debt-to-gross domestic product ratio projected to fall below 95% only by 2032. More will be needed to address debt challenges and avoid distress. Sri Lanka must sustain efforts to build external and fiscal buffers and implement structural reforms to support trade and investment through private sector-led growth and other flows that do not add to the debt burden.
The growth forecasts were finalized prior to the 2 April announcement of new tariffs by the US administration, so the baseline projections only reflect tariffs that were in place previously. However, ADO April 2025 does feature an analysis of how higher tariffs may affect growth in Asia and the Pacific.
ADB is a leading multilateral development bank supporting sustainable, inclusive, and resilient growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members—49 from the region.