- Macro momentum has strengthened: Following years of negative growth, GDP is now holding at around 5% for a second straight year, with the recovery proving durable. Inflation has remained relatively contained at around 6%, despite higher energy prices, and is expected to return to the Central Bank of Sri Lanka’s 5% target over the coming quarters. IMF program implementation has been strong despite the challenging circumstances and helped build up fiscal and external buffers to weather the uncertain global environment.
- Fiscal discipline is paying off: Sri Lanka is beating its IMF program targets (established during its debt restructuring), with the primary fiscal surplus peaking at ~5.4% of GDP in 2025. This is an 11-percentage-point turnaround since 2021, which is a level of discipline few EM sovereigns can match right now—and it brings debt down to a sustainable trajectory.
- External finances have stabilized: A current account surplus, fueled by remittances and tourism, has helped rebuild FX reserves to $6.5 billion.
- The risk-reward dynamic is compelling: With credit fundamentals continuing to improve, we believe recent developments warrant close attention from investors.
Sources: Neuberger, IMF, Bloomberg, as of 30 June 2026.
Robust Rebound in Growth from the Crisis
Real GDP Growth (%) from 2016 to 2025
Source: Neuberger, as of January 2026. Figures for 2025 are forecasts. Actuals from the IMF and Bloomberg.
Primary Surplus Has Been Pushing Debt Levels Lower
Government Debt and Primary Balance (% of GDP)
Source: Neuberger, as of January 2026. Figures for 2025 are forecasts. Actuals from the IMF and Bloomberg.
