Sri Lanka enters 2026: Cyclone shocks test growth and resilience
Sri Lanka steps into 2026, focusing on economic recovery with forecasts of 5 per cent growth driven partly by post-cyclone reconstruction, leveraging its ports as regional hubs, developing its tech/AI sector, Finance Ministry sources said.
The government is optimistic in introducing national strategies and rebuilding tourism with strategic plans for sustainable, purpose-driven travel, while managing challenges like recent cyclone recovery and long-term development goals.
The international lending institutions, however, don’t share the same optimism. The IMF/World Bank forecasts that the growth will be around 3.1 to 3.5 per cent while the Asian Development Bank has placed it at a slightly higher 4.5 per cent.
This mismatch in projections indicates an alarming reality. With macroeconomic discipline restored, the economy is still vulnerable to external and climate-related shocks and this vulnerability is apparent as a result of the cyclone and floods that struck at the end of this year.
By late 2025, a state with a historical peculiarity had been attained by Sri Lanka that of having policy credibility.
Central Bank Governor Nandalal Weerasinghe has repeatedly stated that “price stability is a precondition for sustainable growth”, signalling that policy discipline would not be relaxed lightly.
But the cyclone- and flood-related damage wiped out crops, homes, roads, irrigation systems and schools across multiple provinces, disrupting food supply chains and raising transport and logistics costs.
With agriculture hit hardest, food price pressures are now expected to push inflation gradually back toward the Central Bank’s 5 per cent target by mid-2026.
Minister of Agriculture K.D. Lal Kantha, speaking on the economic fallout from the cyclone and floods, warned that economic pressure could intensify by the Sinhala and Tamil New Year in April 2026 unless reconstruction costs, agricultural losses and supply disruptions are managed properly.
His caution reflects growing concern within the government that the fiscal space is thin, capital spending had already been compressed, and Sri Lanka entered the disaster season without a fully funded programme.
A senior Finance Ministry official conceded that “the discipline of 2025 prevented instability but it does not automatically deliver recovery at the household level.”
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