Sri Lanka shows signs of economic recovery amid mixed sector growth

Sri Lanka is showing signs of economic recovery following its recent severe financial crisis. The economy expanded by 4.2% in the second quarter, supported by fiscal reforms and cooperation with the International Monetary Fund.

In the tourism sector, August 2026 saw the first monthly increase in revenue in ten months, rising 2.1% year-over-year to US$264.4 million. This growth occurred despite a 3.3% decline in tourist arrivals. The Sri Lanka Tourism Development Authority has since revised its annual revenue target from US$5 billion to US$4.2 billion due to adjusted spending and stay-length estimates.

Industrial activity presents a mixed outlook. The manufacturing sector continued to expand in August 2026, though the pace of growth slowed according to Purchasing Managers' Index (PMI) data. Meanwhile, the apparel industry, a major export driver, is aiming to add US$3 billion to its export earnings through value addition, market diversification, and increased sustainability.