First Capital predicts ‘snail pace’ growth for 2026

URGES AGGRESSIVE REFORMS TO UNLOCK POTENTIAL GDP GROWTH PROJECTED AT SLUGGISH 3-4% FOR 2026 VEHICLE TAX REVENUE DROPS TO WIDEN BUDGET DEFICIT TO 5.9% URGENT REFORMS NEEDED TO ATTRACT FDI AND ESCAPE LOW-GROWTH TRAP

- By NISHEL FERNANDO

Sri Lanka is poised to navigate a period of moderate economic expansion in the coming year, a trajectory described as “snail pace slow” by First Capital Holdings PLC, with Gross Domestic Product (GDP) growth projected to hover between 3 and 4 percent for 2026.

The research house highlighted that while the country has secured political stability and fiscal discipline, the sluggish pace of crucial structural reforms prevents the economy from shifting into a higher gear.

First Capital assigned a 70 percent probability to this base-case scenario, contrasting it with a more optimistic “monorail dream” scenario of over 5 percent growth, which they deem less likely at present.

Presenting the outlook, First Capital Assistant Vice President - Research, Ranjan Ranatunga, noted that the economic environment is shifting from the rapid recovery seen previously to a more subdued phase.

While inflation is edging up, it remains below the Central Bank's target of 5 percent. However, the interest rate environment is expected to tighten, with market yields projected to rise by 50 to 100 basis points. Consequently, the one-year Treasury bill rate is forecast to move between 8.5 percent and 9.5 percent by the end of 2026.