Sri Lanka economy shows mixed signals with rising inflation and debt

Sri Lanka is experiencing mixed economic indicators as of late August 2026. Inflation rose to 8% in August, driven primarily by food price increases, causing savers to see lower real returns on deposits. Despite this, the country's export earnings reached USD 10.49 billion in the first seven months of the year, a 5.5% increase compared to 2025.

In the financial markets, the Colombo Stock Exchange showed signs of recovery, with the All Share Price Index (ASPI) nearing the 21,400 mark at the start of September. While foreign investors saw a modest single-day inflow of LKR 26 million in late August, year-to-date foreign outflows remain significant at LKR 55.8 billion. Conversely, foreign investment in rupee bonds has seen a recent influx, with approximately USD 24.8 million acquired in the week ending August 28.

On the debt front, total gross public debt rose to nearly Rs. 33 trillion by the end of June 2026. While the debt increased in rupee terms, its US dollar value declined to approximately USD 97.95 billion due to exchange rate fluctuations. The current account recorded a deficit of USD 142 million in July, marking the fourth consecutive month of deficits.