Aligning private capital with public purpose: Role of banks in driving a true Sri Lankan revival

SRI Lanka stands at crossroads. After five years of multiple crises and many hardfought reforms, our economy made its first tentative steps back to growth in 2025.

- BY DAMITH PALLEWATTE

Following successive contractions, GDP growth has reached a commendable 4.8% in 1Q25.

Deflation early in the year offered consumers welcome relief, while an 800basispoint policyrate reduction since 2023 has reignited private credit growth. This monetary easing is expected to nudge inflation back into positive territory—an outcome that, if kept moderate, will support business investment and planning and underpin sustainable economic expansion.

The steady resumption of infrastructure spending, robust remittance inflows and prudent management of foreignexchange reserves have quietly restored confidence that a genuine revival is within reach.

Macro-stabilisation yet to reach the household

Yet even as these macroeconomic fundamentals strengthen—anchored by disciplined fiscal policies and decisive monetary easing—daily life remains a stark struggle for a significant majority of Sri Lankans.

Poverty remains high at nearly 25%, household incomes still lag behind precrisis levels, and underemployment persists. Rural communities in particular which are heavily dependent on agriculture - face regular hardships due to variable farm income, crop failures, and food wastage.

Together with erratic weather patterns, rising costs of fertiliser and other inputs, Sri Lanka's agriculture sector remain state in 2025, even as manufacturing, construction and export-oriented industries collectively drove growth rates close to double digits, while services-buoyed by more than 1 million tourists to Sri Lanka in the first 6 months alone registered healthy gains.