A post-cyclone rebuilding push, smarter spending, and renewed confidence could propel Sri Lanka’s economy beyond expectations in 2026, if execution matches ambition.
Sri Lanka’s economy is shaping up for stronger than expected growth in 2026, with recovery spending after Cyclone Ditva likely to provide an additional boost, according to Central Bank Governor Dr. Nandalal Weerasinghe. Speaking during a televised discussion on the country’s economic outlook, he said earlier growth forecasts may now prove conservative if reconstruction funds are deployed efficiently and without delay.
Initial projections had placed economic growth in the range of 4 to 5 percent. However, Dr. Weerasinghe explained that large scale recovery and rebuilding efforts could lift overall economic activity beyond that range. He noted that economic performance in 2025 had already exceeded expectations, reaching close to 5 percent by the third quarter, reflecting renewed momentum after years of crisis.
The full impact of Cyclone Ditva on fourth quarter growth is still being assessed, the Governor said, but current indicators suggest the final outcome for 2025 will remain close to earlier estimates. “Before the cyclone, our growth projections for the next few years were in the range of 4 to 5%. But now with the addition of reconstruction and recovery spending, economic activity could pick up in 2026,” Weerasinghe said.
He outlined that the government has allocated Rs. 1.4 trillion for public investment in the 2026 Budget and is expected to add a further Rs. 500 billion specifically for cyclone recovery. This additional spending, particularly in construction, infrastructure, and allied sectors, is expected to stimulate employment, domestic demand, and private sector participation.
At the same time, Dr. Weerasinghe cautioned that rising demand for goods, services, and labor could exert upward pressure on prices. “There could be some upward pressure on inflation,” he said, noting that inflation, currently around 2 percent, is projected to rise to about 5 percent by the third quarter of 2026.
He also highlighted possible pressures on foreign exchange reserves, as higher public spending may increase demand for imported construction materials and fuel. To offset this, Sri Lanka must strengthen foreign exchange inflows through exports, tourism recovery, and external financing such as loans and grants.
While the outlook suggests solid growth potential, the Governor stressed that outcomes will ultimately depend on how quickly, transparently, and efficiently recovery spending is implemented.
