Sri Lanka’s economy is projected to grow by 3.9% in the current fiscal year, according to the Asian Development Bank (ADB), following a stronger-than-expected rebound in 2024.
The ADB’s flagship economic publication, the Asian Development Outlook (ADO) April 2025, reports that Sri Lanka’s economy grew by 5.0% in 2024—the highest rate since 2017—after contracting by 2.3% in 2023.
Looking ahead, the ADB forecasts moderate growth of 3.9% in 2025 and 3.4% in 2026, indicating a continued but cautious recovery. The report warns, however, that despite the robust rebound in 2024, the recovery remains fragile.
The ADB noted that inflation turned negative starting in September 2024, largely due to steep cuts in utility prices. After falling sharply from 17.4% to 1.2% in 2024, inflation is expected to rise again—reaching 3.1% in 2025 and 4.5% in 2026—driven by stronger demand, rising electricity tariffs, and currency depreciation.
“Inflation decelerated significantly in 2024 following major cuts in energy prices,” the report stated. “Credit to the private sector picked up, reserves continued to build up, while tourism and remittance inflows remained strong. ADB expects the recovery to continue into 2025 and 2026.”
Meanwhile, economic growth in the broader South Asian region is expected to increase from 5.8% in 2024 to 6.0% in 2025 and 6.2% in 2026.
The ADB clarified that the growth projections were finalized prior to the April 2 announcement of new tariffs by the U.S. administration. Therefore, the baseline forecasts reflect only the tariffs that were previously in place. However, ADO April 2025 includes a special analysis of the potential impact of higher tariffs on growth across Asia and the Pacific.
