UPDATE 2-Sri Lanka economy reports 4.9% growth in second quarter

Sri Lanka's economy grew 4.9% year-on-year in the second quarter of 2025, official data showed on Monday, indicating a strengthening recovery from its worst financial crisis in decades. Sri Lanka's agriculture sector grew by 2% in the second quarter from a year earlier, while industrial output expanded by 5.8%, and services grew by 3.9%, the census and statistics department said in a statement.

Struck by a severe shortage of dollars, the economy went into free fall in 2022, contracting 7.3% as it grappled with soaring inflation, a sharply weaker currency and foreign debt default. The economy shrank 2.3% in 2023.

But it made a stronger-than-expected recovery last year, posting 5% growth as measures implemented under a $2.9 billion, four-year bailout from the International Monetary Fund, secured in March 2023, bore fruit. In the first quarter of this year Sri Lanka grew by 4.8%.

"Sri Lanka has shown a remarkable growth in its GDP, with the 7th consecutive quarter above 4.5% in testament to the recovery seen on the ground. The growth is above the 4.5% estimate by the Central Bank of Sri Lanka and is significantly higher than initial estimates by the World Bank and Asian Development Bank," said Raynal Wickremeratne co-head of research at Softlogic Stockbrokers "We can expect a revision following these results, as witnessed by the strong growth in 2024," Wickremeratne said.

The Central Bank of Sri Lanka expects growth to be 4.5% this year, above the 3.5% projected by the World Bank. The central bank has room to cut interest rates further given inflation is at 1.2%, well below the target of 5%, but is treading carefully to preserve a buffer against potential external shocks, Governor P. Nandalal Weerasinghe told Reuters.

The bank's next policy meeting is on September 23.

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