Sri Lanka is likely to encounter sustained economic challenges linked to its debt burden and the volatility of food prices as global trade tensions intensify, according to a new report released by the United Nations Conference on Trade and Development (UNCTAD) this week.
The report warns that many low-income countries are now caught in a “perfect storm” of deteriorating external financial conditions, unsustainable debt levels, and weakened domestic growth. Among the nations highlighted were Sri Lanka, Bangladesh, and Pakistan, each grappling with overlapping fiscal and structural pressures.
UNCTAD forecasts that the global economy is on a downward trajectory, with growth expected to slow to 2.3 percent in 2025. The slowdown is driven largely by escalating trade conflicts, rising uncertainty in global markets, and reduced confidence in international trade systems.
For Sri Lanka, the mounting difficulties are compounded by its significant debt obligations and the fragility of its external income sources. Earlier this month, U.S. President Donald Trump imposed a 44 percent tariff on Sri Lankan exports. While implementation of the tariff has since been suspended for a 90-day grace period, concerns remain over its long-term impact. The United States is Sri Lanka’s single largest export market, accounting for approximately $2.9 billion in annual revenue.
The UNCTAD report also cited broader systemic threats, including trade policy instability, currency fluctuations, and hesitant investment behavior in key economies. “Trade policy uncertainty is at a historical high,” the report stated, warning that this unpredictability is already discouraging capital investment and delaying hiring decisions in both developed and developing markets.
UNCTAD noted that while all countries are expected to feel the effects of the global slowdown, developing nations—especially those already vulnerable—will be disproportionately impacted. The organization emphasized the importance of South-South trade as a vital buffer in the face of protectionist shocks from advanced economies. It also advocated for renewed dialogue, stronger regional cooperation, and global policy coordination to navigate rising risks and maintain development momentum.
“Coordinated action will be essential to restore confidence and keep development on track,” the report concluded, urging the international community to rally around collaborative frameworks amid deepening global uncertainty.
