Sri Lanka’s economic growth is projected to moderate from 5.0% in 2025 to 4.0% in 2026 before rising slightly to 4.2% in 2027, according to the Asian Development Bank’s flagship Asian Development Outlook (ADO) April 2026 report released on Thursday.
The ADB further projects inflation to accelerate sharply from -0.5% in 2025 to 5.2% in 2026, driven largely by the Middle East conflict’s impact on energy and food prices, before easing to 4.0% in 2027.
The multilateral lender noted that Sri Lanka’s recovery held firm in 2025 despite the late-year disruption of Cyclone Ditwah. Private consumption surged amid low inflation and easing interest rates, while remittances hit a record high. The primary budget surplus also reached record levels, and official reserves climbed to their strongest position in years.
However, the 2026 outlook is increasingly shaped by the ongoing Middle East conflict, even as post-Ditwah reconstruction spending provides some growth support. Higher energy costs, potentially weaker remittance inflows, and disruptions to trade and tourism will weigh on household incomes and external buffers.
“Sri Lanka has come a long way since the recent economic crisis,” the ADB said, while warning that the conflict remains the single biggest downside risk.
The forecast comes as Sri Lanka navigates the dual challenge of the Middle East energy crisis and elevated trade uncertainty, with the IMF’s 5th and 6th reviews recently concluding a staff-level agreement for approximately $700 million in programme disbursements.
The ADB’s regional forecast projects broader Asia-Pacific growth slowing to 5.1% in both 2026 and 2027 from 5.4% last year.
