The Asian Development Bank (ADB) has kept its growth forecast for Sri Lanka steady at 3.9% for 2025, matching its April projection, but warned of a slowdown in 2026 due to the impact of a new 20% US tariff on key exports.
In its September outlook report, the ADB revised down Sri Lanka’s growth forecast for 2026 to 3.3%, citing the tariff, primarily affecting garments and rubber, which together accounted for 23% of the country’s exports to the US in 2024, as a significant headwind.
The tariffs are expected to dampen export performance and reduce consumption by triggering potential job losses, both directly and indirectly.
The report also highlighted that Sri Lanka experienced deflation for most of 2025. However, inflation has since turned positive and is forecast to rise to 4.5% in 2026, aligning with the central bank’s target. The inflation forecast for 2025 was lowered to 0.5%, mainly due to falling energy prices.
On the fiscal front, the ADB expects Sri Lanka’s debt to stabilise around 109% of GDP by 2025-26, supported by ongoing economic policy adjustments under International Monetary Fund (IMF)-backed programmes and improved macroeconomic conditions.
Despite these positive signs, the ADB cautioned that downside risks remain elevated.
These include the possibility of a greater-than-expected negative impact from US tariffs, increasing geopolitical uncertainty in the Middle East affecting remittance flows, volatility in energy prices, and a potential global economic slowdown that could hit tourism and external demand.
Furthermore, domestic weather-related disruptions pose risks to agriculture and food prices, adding further challenges to the outlook
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