2026 growth to be driven by tourism: MEI

Sri Lanka’s domestic income growth in 2026 is to be driven by tourism and favourable monetary policy, amidst projected downside risks such as global supply chains disruptions and external market instability, Mastercard Economic Institute (MEI) said, in its Economic Outlook report for 2026

“(Sri Lanka’s) underlying economic momentum remains robust, supported by private consumption, investment, low inflation, strong remittances, rising tourism receipts and accommodative monetary policy,” the report detailed.

Sri Lanka’s tourism earnings edged up by merely 4.9% in year-on-year terms between January and October this year to $ 2.6 billion, from earnings posted in the corresponding period of 2024.

The Central Bank held its Overnight Policy Rate (OPR) at 7.75% in September, while continued declining policy rates since 2023 and reductions in the Statutory Reserve Ratio (SRR) injected liquidity, eased monetary conditions and boosted credit.

Noting the regional disruptions that have taken hold of global trade supply chains, the advisory said that Sri Lanka, like many other nations in the Asian region, is to rely on its tourism offerings.

“Tourism beyond the traditional hubs may be a critical growth lever for the region. Global disruptions that affect supply chains and external market stability, along with climate-related volatility, especially in food prices, pose downside risks.”

“In this context, tourism is emerging as a critical growth lever for the region – enhancing external stability and supporting small businesses, local communities and consumption. Tourism is growing beyond traditional urban centres; for example, in India, the beaches of Goa, the wellness retreats of Rishikesh and the Golden Temple in Amritsar are attracting tourists; the same is true of the leisure-led southern tip of the island nation of Sri Lanka,” the report said.

Mastercard Country Manager Sandun Hapugoda, in a post published on LinkedIn said that tourism locations such as Ella, located in the central part of the country, has seen a significant amount of transactions taking place. “Ella stands out with a 7.48% share of transactions and a +3.59 pp growth, reinforcing its position as a key inland tourism destination.”

Commenting on the growth seen in the southern most part of Sri Lanka, Hapugoda said: “The Southern Belt tells the most compelling story. Destinations such as Ahangama, Weligama, Dickwella, Matara, and Mirissa are seeing strong and sustained momentum, driven by experiential travel and longer stays.”

“Ahangama has recorded a +5.54 pp increase, contributing 6.11% of total transactions, while Weligama follows closely with +3.25 pp and a 4.91% share. Dickwella has grown by +3.51 pp, contributing 3.86%, Matara by +2.18 pp with a 3.17% share, and Mirissa by +0.88 pp, now accounting for 3.01% of transactions.”

“Traditional hot spots, Kandy and Galle have declined by 1.6 pp while maintaining contributions of 5.96% and 5.37% respectively,” he said, noting the deviation from well-established tourism hotspots to other parts of the country.

The advisory said that it sees Sri Lanka’s GDP growth to moderate at 3.7% next year, from 4.4% seen in this year.

Further, the MEI forecasts that external sector volatility, owing to the US tariffs, is to impact export segments such as gems, textiles, and jewelry.

“External headwinds persist. High US tariffs may challenge labour-intensive sectors like textiles, gems and jewelry, while tightening immigration norms could impact IT services through reduced labour mobility, travel flows and remittances,” it said, commenting on the potential impact the US administration’s decisions will have on India.

“The progress on the ongoing US-India trade deal will be closely watched. These shifts also present opportunities for India to diversify supply chains and expand goods trade through bilateral and regional agreements – fuelling growth in global capability centres and Tier 2-3 cities.”

Source: The morning