Sri Lanka's Economic Growth Forecast to Decelerate Amid Global Uncertainties

Strategic Insights -

Sri Lanka's economy is set to experience a decline in growth, with a forecasted deceleration to 3.5 per cent this year, followed by further drops to 3.1 per cent in 2026 and 2027. The World Bank's Global Economic Prospects report attributes this decline to the scarring effects of the crisis, structural impediments to growth, and heightened global economic uncertainties. In contrast, India is projected to grow at 6.3 per cent in 2025/26, while growth in Bangladesh is expected to increase to 4.9 per cent in 2025/26 and 5.7 per cent in 2026/27.

Key Takeaways:

  • Sri Lanka's economic growth is forecast to decelerate to 3.5 per cent this year, reflecting the scarring effects of the crisis, structural impediments to growth, and heightened global economic uncertainties.
  • The World Bank has downgraded its forecast by 0.4 percentage points relative to January projections, citing weaker activity in key trade partners and rising global trade barriers.
  • India is projected to grow at 6.3 per cent in 2025/26, with growth in Bangladesh expected to increase to 4.9 per cent in 2025/26 and 5.7 per cent in 2026/27.
  • Growth in Pakistan is expected to strengthen to 3.1 per cent in 2025/26 and 3.4 per cent in 2026/27, aided by contained inflation and declining borrowing costs.
  • The projected strengthening of growth in Bhutan and Nepal reflects an expansion of hydroelectricity generation.
  • In the Maldives, GDP is expected to expand by 5.7 per cent this year and then moderate to 5.3 per cent in 2026, partly reflecting global trade uncertainties and projected weakening in external demand.
  • Growth in Afghanistan is envisaged to remain subdued at about 2.2 per cent in 2025/26, due in part to disruptions in aid from donor countries.

Statistics:

  • Sri Lanka's economic growth is forecast to decelerate to 3.5 per cent in 2025, 3.1 per cent in 2026, and 3.1 per cent in 2027.
  • India is projected to grow at 6.3 per cent in 2025/26.
  • Growth in Bangladesh is expected to increase to 4.9 per cent in 2025/26 and 5.7 per cent in 2026/27.
  • Growth in Pakistan is expected to strengthen to 3.1 per cent in 2025/26 and 3.4 per cent in 2026/27.
  • The projected strengthening of growth in Bhutan and Nepal reflects an expansion of hydroelectricity generation by 5 per cent in 2025/26.
  • In the Maldives, GDP is expected to expand by 5.7 per cent in 2025 and moderate to 5.3 per cent in 2026.

Sources:

  • World Bank. Global Economic Prospects.