IMF projects Sri Lanka growth to slow to 4% in 2026

By The Pulseline News Desk

Sri Lanka’s economic growth is projected to moderate to 4.0% in 2026 and 3.7% in 2027, following an estimated expansion of 5.0% in 2025, as the country continues its recovery amid domestic economic adjustments and changing global conditions.

According to the International Monetary Fund’s (IMF) latest World Economic Outlook 2026: Resilience Under Strain, Urgent Choices, the projections indicate that economic activity will continue to expand, although at a slower pace over the next two years.

The outlook also points to renewed inflationary pressures, with Sri Lanka’s average annual inflation rate projected to rise from -0.5% in 2025 to 5.3% in 2026 and 5.4% in 2027.

The shift from negative average inflation in 2025 to positive rates over the following two years signals a change in the country’s price environment, with maintaining price stability remaining an important consideration as the economic recovery progresses.

Meanwhile, Sri Lanka’s external position is expected to weaken, with the current account balance projected to move from a surplus equivalent to 1.6% of gross domestic product (GDP) in 2025 to deficits of 0.5% in 2026 and 0.3% in 2027.

The projected reversal suggests that the country’s external transactions could come under renewed pressure, highlighting the importance of maintaining adequate foreign exchange buffers and strengthening the resilience of the external sector.

On the employment front, the IMF expects Sri Lanka’s unemployment rate to remain unchanged at 3.9% throughout the 2025–2027 period.

The forecasts form part of the IMF’s broader assessment of developing and emerging Asian economies as countries navigate post-crisis stabilisation, fiscal consolidation and evolving global economic conditions.

For Sri Lanka, the projections come as policymakers continue efforts to consolidate the gains made following the economic crisis while pursuing sustainable growth.

Although the economy is expected to maintain positive growth over the forecast period, the combination of moderating expansion, rising inflation and a projected return to current account deficits underscores the challenges facing policymakers in sustaining the recovery.

The outlook highlights the need to balance economic growth with price stability and external sector resilience as Sri Lanka continues its efforts to strengthen macroeconomic stability.