Sri Lanka now in growth phase, says AFC

SRI Lanka is poised for a period of sustained economic growth after years of crisis, according to Asia Frontier Capital (AFC) Fund Manager Ruchir Desai, who argues that political stability, reforms and attractive valuations make the country a compelling opportunity for investors.

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“With an outlook for stable growth, a universe of exceptionally well-run companies with good corporate governance and valuations that are still below pre-crisis levels, Sri Lanka remains a top country pick for our AFC Asia Frontier Fund,” he said. Sri Lanka is the second largest country weight in the AFC Asia Frontier Fund at 12.9%.

Writing in 'Intemational Banker' on 16 September under the title 'Sri Lanka: From stability to growth, Desai noted that GDP growth reached 5% in 2024 and 4.8% in the first quarter of 2025, well ahead of expectations (GDP growth inched up to 4.9% in 20).

He said growth is being driven by domestic consumption, business and infrastructure spending, as well as a strong rebound in tourism.

"Although Sri Lanka's economic momentum has been positive over the past 18 months, it is essential to put this in perspective, given the fact that the country faced numerous challenges between 2018 and 2022. It is only now that Sri Lanka, after facing such hardship, is realising its potential," he wrote.

Desai said he visited Colombo in November 2022 when valuations on the Colombo All-Share Index had collapsed to a price-to-earnings ratio of just 4.0 times, levels not seen in decades. He described it as the bottom of a downward economic spiral but also "the beginning of incremental improvements".

He credited the Central Bank of Sri Lanka with stabilising the currency and curbing inflation through steep rate hikes and a managed devaluation in 2022.