Sri Lanka’s economic growth to drop to 3.5 per cent this year, 3.1 next year, World Bank Reports

14 June 2025 (Daily Mirror) By Tahaan Jayewardene

Colombo, June 14 (Daily Mirror) - Sri Lanka’s economic growth is forecast to decelerate to 3.5 per cent this year, reflecting the scarring effects of the crisis, structural impediments to growth, and heightened global economic uncertainties, according to the World Bank.

Economic growth is expected to drop further in 2026 and 2027 to 3.1 per cent.

The World Bank’s latest Global Economic Prospects report states that, after unexpectedly weak growth of 6 per cent in 2024, activity in South Asia is decelerating amid rising global trade barriers, heightened policy uncertainty, and financial market volatility.

India is projected to grow at 6.3 per cent in 2025/26. The forecast has been downgraded by 0.4 percentage points relative to the January projections, with exports dampened by weaker activity in key trade partners and rising global trade barriers. In the next two fiscal years, starting in 2026/27, growth is expected to recover to 6.6 per cent a year, on average, partly supported by robust services activity contributing to a pickup in exports, according to the report.

“Excluding India, regional growth is forecast to inch up to 3.6 per cent in 2025 and firm to 4.4 per cent a year in 2026-27, on average,” it says. “Growth in Bangladesh is projected to increase to 4.9 per cent in 2025/26 and 5.7 per cent in 2026/27, with an expected rebound in investment, predicated on improving political stability and the successful implementation of reforms. In Pakistan, growth is expected to strengthen to 3.1 per cent in 2025/26 and 3.4 per cent in 2026/27, aided by contained inflation and declining borrowing costs. The projected strengthening of growth in Bhutan and Nepal partly reflects an expansion of hydroelectricity generation.” The report says, “In the Maldives, GDP is expected to expand by 5.7 per cent this year and then moderate to 5.3 per cent in 2026, partly reflecting global trade uncertainties and projected weakening in external demand. Growth in Afghanistan is envisaged to remain subdued at about 2.2 per cent in 2025/26 (late-March 2025 to late-March 2026), due in part to disruptions in aid from donor countries.”

In the overall context, growth in South Asia is expected to slow to 5.8 per cent in 2025 as rising trade barriers weigh on exports, dampen business confidence, and weaken investment in the region, according to the report. Growth is then set to increase to 6.2 per cent a year, on average, in 2026-27, supported by improving activity in India and accelerations elsewhere, broadly consistent with the region’s potential growth estimates, the report says.

“Key risks include possible further intensification of trade barriers from major trading partners and heightened global trade policy uncertainty. Higher-than-expected global inflation and a decline in risk appetite could lead to a tightening of global financial conditions, potentially weakening currencies in the region and causing capital outflows. Other downside risks include the possibility of a surge of violence and social unrest in the region, as well as more frequent and severe natural disasters,” the World Bank states.☀