Quiet New Year: Hard reset for Sri Lanka’s economy
With the calendar turning to 2026, Sri Lanka enters the New Year-not with bursting firecrackers-but in contemplation and resolve. Thrifty households across towns and villages have been conditioned through experiences of economic shock, natural disasters, and stringent policy correction
This New Year’s Eve will be quieter than usual, but beneath the subdued atmosphere lies a story of resilience; a nation attempting a disciplined economic reset, built on the lessons and reforms of 2025.
According to Finance Ministry sources, fiscal and monetary discipline anchored 2025, with Budget measures expanding VAT, restructuring corporate taxes, and laying groundwork for property taxation.
The Central Bank has maintained a consistent policy to guide inflation to its 5 per cent target range. Though such policies brought order to the macro-economic environment, these indirectly affected the behavior of consumer spending by households.
Damage from Cyclone Ditwah has been estimated by the World Bank at US$4.1 billion; this would equate about 4 per cent of the country’s GDP affecting the road networks, bridges, dwelling houses, and irrigation systems of over 25 districts of the country including Batticaloa
For rural households, the lashing of the cyclone was mixed timing. Rice paddies were inundated when the Maha season of cultivation was just beginning.
Tea plantations in the Central Highlands of the country also sustained heavy losses. Planting anew and restoring their livelihoods would represent the year 2026 for them even as the nation pushes for stabilisation of its economy.
Despite these challenges, the policy agenda in Sri Lanka continues to pursue long-term resilience. Exports, having just fallen short of the target of $18.2 billion in 2025, remain a key driver in the recovery process assisted by trade facilitation policies, customs modernisation, and investment protection policies.
The National Export Development Plan (NEDP) for the period 2026 to 2030, scheduled to be launched in January, targets export growth at $36 billion through a connection between trade-related tariff reform and skills formation in a digital environment, Export Development Board (EDB) Chairman Mangala Wijesinghe said.
There is also a shift in infrastructure policies to the aspect of resilience. There is flood control, climate-resilient infrastructure, and disaster-proof housing alongside increased infrastructure in ports, logistics, power, and digital infrastructure.
Industrial policy followed a parallel path. Under the Economic Transformation Act, new industrial zones, improved land access, and policy stability had been prioritised to attract higher-value FDI, officials said.
MSMEs have been repositioned from survival mode toward global value chain integration, supported by plans for a development bank and export market access.
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