Sri Lanka economy reaches pre-crisis levels amid uneven recovery

Sri Lanka’s economy has returned to pre-crisis levels, with real GDP increasing 4.7% in the first half of 2026. The World Bank projects 4.4% GDP growth for the full year, driven by industry and services. Despite this rebound, the recovery remains uneven; household incomes and labor market outcomes continue to lag, and poverty remains significantly higher than pre-crisis levels.

The World Bank has revised its poverty estimates using more detailed household-level data. Under this new methodology, the poverty rate is estimated to have peaked at 20.7% in 2023, down from a previous estimate of 27.6%. However, the institution emphasized that this change is methodological and does not reflect a change in reality: approximately two million people were still pushed below the poverty line during the crisis. Poverty is projected to remain above 2019 levels through at least 2028.

In the financial sector, foreign investors have recently reduced their exposure to the Colombo Stock Exchange and government securities. While recent equity outflows are considered mild compared to the year-to-date average, foreign holdings of government securities dropped by approximately 4.45% in late September. Geopolitically, Sri Lanka continues to navigate complex relationships with major powers like China, India, and the United States as it manages debt restructuring and IMF bailout requirements.