Sri Lanka’s economy is projected to grow by 3.9% in the current fiscal year, according to the Asian Development Bank. 

The ADB said Sri Lanka’s growth exceeded expectations, rebounding by 5.0% in 2024, the highest rate since 2017, after 2.3% contraction in 2023. 

Sri Lanka’s recovery will continue at a moderate growth of 3.9% in 2025 and 3.4% in 2026 following the strong rebound in 2024, the ADB’s flagship economic publication, the Asian Development Outlook (ADO) April 2025 has indicated.

It cautioned that although Sri Lanka’s growth recovery exceeded expectations in 2024 it remains fragile. The ADB noted that inflation has been in negative territory since September 2024 due to steep utility price cuts. 

Following a steep decline from 17.4% to 1.2 % in 2024, inflation is expected to rise to 3.1% in 2025 and 4.5% in 2026, driven by higher demand from the ongoing recovery, higher electricity tariffs, and currency depreciation.

It added, “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.”

Meanwhile, growth in the South Asian region is expected to rise from 5.8% in 2024 to 6.0% in 2025 and 6.2% in 2026.

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.