World Bank warns Sri Lanka's recovery fragile, urges urgent reforms to sustain growth

Projects Sri Lanka's economy to grow by 4.6% in 2025 and 3.5% in 2026 but warns recovery remains fragile without urgent reforms in trade, investment, taxation, and job creation

- DEVAN DANIEL

SRI Lanka's economy is expected to grow by 4.6% in 2025, supported by a modest rebound in industry and steady growth in services, before slowing to 3.5% in 2026, according to the World Bank's latest Sri Lanka Development Update titled 'Better Spending for All'.

THE World Bank yesterday outlined a critical package of reforms it says Sri Lanka must push through to attract capital, revive exports and build long-term competitiveness, warning that export growth has slowed and foreign direct investment remains far too low to meet the country's growth objectives.

The report, launched yesterday in Colombo, warns that the recovery remains fragile and heavily dependent on the country's ability to implement deep and sustained reforms.

Speaking at the launch, World Bank Country Manager for Sri Lanka and the Maldives Gevorg Sargsyan said the country's economy had shown encouraging signs of recovery in the first half of 2025, growing by around 5% as industrial activity rebounded and services expanded.

"We have seen people spending and investing more, inflation returning to low and stable levels, and businesses benefiting from easier access to credit," he said speaking via video conference from Washington D.C. where he is attending the IMF/World Bank Annual Meetings also attended by senior Sri Lankan officials.

He noted that Government finances had improved with stronger revenue collection, a smaller deficit, and stable foreign reserves, reflecting "the determination and effort of the Sri Lankan Government and people from all walks of life." However, he cautioned that the journey was far from over.

"The economy is still not back to where it was in 2018, and while poverty is expected to fall this year, it is still twice as high as it was before the crisis in 2019," he said.

Sargsyan said that about 22% of the population still lives below the poverty line and another 10% remains just above it.