Recovery and reconstruction to drive 2026 growth: CBSL

Sri Lanka can expect to see growth driven by Cyclone Ditwah recovery and rebuilding expenditure, as public investments are expected to increase by roughly 35.7% in 2026 due to the Rs. 500 billion allocated towards it, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said recently (02), speaking on Ada Derana’s Hydepark with Indeewari Amuwatte programme.

“Without this cyclone, earlier the Government had allocated, I think, about Rs. 1.4 trillion for public investments. Now, on top of that, we’re going to add another Rs. 500 billion. So that should create additional economic activities, especially in construction,” Dr. Weerasinghe said, referring to the Rs. 500 billion allocation that took place by way of parliamentary approval in December.

“What could be different in 2026, compared to earlier in terms of growth, would be that because of this cyclone, if the Government is going to spend the money that was allocated for rebuilding, reconstruction, recovery, and compensation, that will create additional economic activity.”

Projecting greater expectations for growth, Dr. Weerasinghe added: “Because of the reconstruction and rebuilding effects, if those funds are spent properly and efficiently within the given periods, economic growth could be higher than 5%.”

Sri Lanka posted 4.8% growth during Q1 of 2025, marginally down from growth recorded in the previous year’s final quarter. However, by Q3, the economy had shown robust performance with a notable 5.4% growth, CBSL data shows.

Data on Sri Lanka’s Q4 growth, which is likely to have been impacted by the adverse effects of Cyclone Ditwah, is yet to be published through official channels.

“If you look at 2025, throughout the year the economy was doing much better than expected; for example, until Q3 growth was very close to 5%. Q4’s growth was uncertain because of the impact of Cyclone Ditwah, which has not been discerned yet,” the governor added.

However, he reassured that it is likely growth in the quarter had not abated to a greater extent. “It will be close to 5%, in my view. Before the cyclone, we had an expectation at the central bank for the next several years that we have the potential to grow at least around 4-5%.”

The Sri Lankan Government’s expectations for 2026 largely align with the International Monetary Fund’s (IMF) revenue-based fiscal consolidation benchmarks, which include a total government revenue target of 15.4% of GDP, a primary surplus target of 2.5% of GDP, and a fiscal deficit of 5.1% of GDP.

Notably, its budget growth target of 7% exceeds that of the IMF’s, which is a more moderate 3.1% target.

Source - The Morning