The Sri Lanka’s economy 2025 performance, as detailed in the Central Bank of Sri Lanka’s (CBSL) Annual Economic Review 2025, reflects continued resilience amid global uncertainties, policy reforms under the IMF Extended Fund Facility (EFF), and the disruptive effects of Cyclone Ditwah in late November. Nominal GDP rose to Rs. 32,750.8 billion (USD 108.8 billion), with a GDP deflator of 3.7%. GDP per capita reached a historic high of USD 5,003 (up from USD 4,546 in 2024), while GNI per capita stood at USD 4,910.
Growth was broad-based, with positive contributions across all quarters and supported by recovering domestic demand, rising consumption, and increased gross fixed capital formation. National savings remained in surplus, aiding external balance improvements.
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Sectoral Performance Driving the Expansion
Industry led sectoral growth at 7.8%, underpinned by manufacturing (7.3%) and construction (3.3%), alongside mining and quarrying activities. Services expanded by 3.3%, supported by financial services (6.2%), transportation and accommodation (noted with 9.2% in related sub-sectors), wholesale and retail trade, and real estate. Agriculture grew modestly at 1.4% (from 0.6% in 2024), with gains in animal production, coconut, and rice partially offset by contractions in fishing, vegetables, and rubber due to weather-related factors.
Tourism showed recovery signals, with arrivals rising 15.1% and earnings reaching approximately USD 3.2 billion, contributing to the services account.
Inflation Trends: From Deflation to Moderate Positive Territory
Headline inflation, measured by the Colombo Consumer Price Index (CCPI, 2021=100, y-o-y), moved from -1.7% at end-2024 to 2.1% by end-2025, with an annual average of -0.5%. The National Consumer Price Index (NCPI) followed a parallel path, reaching 2.9% y-o-y at year-end (annual average 0.2%). Core inflation remained contained, at 2.7% (CCPI year-end) and 2.6% (NCPI year-end).
The economy experienced deflationary conditions from late 2024 into much of 2025, driven primarily by supply-side factors, lower energy and transport costs, and base effects. Inflation turned positive in August 2025. A temporary uptick in December was linked to Cyclone Ditwah’s supply disruptions and festive demand. Early 2026 saw CCPI y-o-y at 2.3% in January, 1.6% in February, and 2.2% in March, indicating a gradual normalization without strong demand-pull pressures.
Monetary Policy and Credit Expansion
The CBSL maintained an accommodative monetary policy stance, with further easing that supported lower interest rates and stimulated economic activity. Private sector credit recorded robust expansion of 25.2% y-o-y by end-2025 (real growth 22.6%), amounting to an increase of around Rs. 2.1 trillion. The growth was broad-based: services contributed about 42% of the expansion, industry 29%, personal loans 20%, and agriculture 8%. This surge was partly driven by eased vehicle import restrictions early in the year. Broad money (M2b) grew by 11.5%. Liquidity conditions in the money market remained generally in surplus, though some asymmetries persisted across bank categories.
External Sector Resilience
The current account recorded a surplus of USD 1.7 billion (approximately 1.6% of GDP) for the third consecutive year, an increase from prior years despite a widened trade deficit of USD 7.9 billion. Goods exports reached USD 13.6 billion (+6.3%), while imports rose to USD 21.5 billion (+14.0%). The services surplus strengthened, supported by tourism earnings of USD 3.2 billion. Workers’ remittances hit a historic high of USD 8.1 billion, growing 22.8% (with possible inclusion of some post-cyclone inflows).
Gross official reserves stood at USD 6.8 billion by end-2025, bolstered by net foreign exchange purchases of around USD 2 billion. The Sri Lankan rupee depreciated by 5.6% against the USD after two years of appreciation, aligning with higher import demand and a flexible exchange rate policy. This movement, along with declines in NEER and REER indices, helped improve external competitiveness.
Fiscal Consolidation and Improved Balances
Fiscal outcomes continued to strengthen under ongoing reforms. The primary surplus reached 5.4% of GDP for the third consecutive year, while the overall budget deficit narrowed to 2.3% of GDP. Total revenue increased 35.2% to Rs. 5,449.4 billion (16.6% of GDP), driven by higher tax collections including VAT, excise, and income taxes. Expenditure management and state-owned enterprise improvements contributed, while social safety nets were preserved to support equitable recovery. The government’s current account (revenue minus recurrent expenditure) recorded a small surplus of 0.7% of GDP. Progress under the IMF-EFF programme advanced, with adjustments for cyclone-related needs including a Rapid Financing Instrument disbursement.
Labour Market and Social Dimensions
The labour market showed improvement, with the unemployment rate declining to 3.9% (from 4.4% in 2024) and the labour force participation rate rising to 49.4% (from 47.4%). Employment gains occurred across sectors, though challenges remained for youth and female participation. Nominal wages increased, and real wages benefited from subdued inflation. Foreign employment departures totalled over 311,000 during the year.
Cyclone Ditwah and Its Economic Context
Cyclone Ditwah, which struck in late November 2025, caused significant disruptions including supply chain issues, food price pressures in December, infrastructure damage, and impacts on agriculture and livelihoods. World Bank estimates placed direct physical damage at approximately USD 4.1 billion (around 4% of GDP). The event led to deferred IMF reviews and emergency financing, yet annual growth figures remained intact at 5% due to policy responses and reconstruction momentum. The cyclone highlighted Sri Lanka’s vulnerability to climate events and the importance of resilient infrastructure.
Sri Lanka’s Economy – Outlook and Key Risks for 2026 and Beyond
Sri Lanka’s 2025 performance demonstrates the benefits of macroeconomic stabilization and structural reforms. Continued moderate growth is anticipated, though 2026 projections incorporate reconstruction needs and external uncertainties. Inflation is expected to normalize gradually toward the CBSL’s target band.
Key risks include recurring weather-related shocks, global trade tensions, commodity price volatility, and the need to manage post-cyclone fiscal pressures. Opportunities exist in expanding tourism, services exports, remittances, and private investment in infrastructure and human capital. Sustaining fiscal discipline, advancing governance and productivity-enhancing reforms, and building climate resilience will be essential for translating recovery into inclusive, sustainable prosperity.
Policymakers, the private sector, and civil society must collaborate to address structural constraints such as low productivity and equitable growth distribution. With prudent implementation of reforms and effective disaster preparedness, Sri Lanka can strengthen its economic foundations for the years ahead.
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