The Asian Development Bank has warned that a prolonged US-Iran conflict could shave 0.5 to 0.8 percentage points off Sri Lanka’s economic growth in 2026, adding fresh urgency to the country’s dual external shock from war and trade disruption.
ADB Senior Country Economist Lilia Aleksanyan told reporters in Colombo on Friday that Sri Lanka’s baseline growth projection stands at 4.0 percent for 2026, down from 5 percent in 2025. But a continuation of the Middle East conflict would cut that further through lower tourism revenues, higher energy costs, and more expensive fertiliser imports.
The conflict could also add 3 to 5 percentage points to Sri Lanka’s already-elevated 5.2 percent inflation projection, Aleksanyan said, compounding pressure on households already facing rising food prices and higher utility costs.
Remittances from Sri Lankan workers in the Middle East remain stable for now but could also be affected if the conflict widens, the ADB economist added.
The downside scenario puts Sri Lanka’s growth as low as 3.2 percent — the weakest pace since the economy began its recovery from the 2022 crisis. The warning comes a day after the IMF concluded its 5th and 6th reviews and flagged coal quality issues as a domestic cost driver.
Sri Lanka faces a dual macro shock from the Middle East energy crisis and the 44 percent US tariff announced in April, with the IMF pushing for a tariff resubmission by June.
