Sri Lanka’s economic recovery is expected to lose momentum in 2025, with growth projected to decelerate to 3.5%, according to the World Bank’s latest Global Economic Prospects report.

The downgrade comes as the country continues to grapple with the scarring effects of its recent economic crisis, persistent structural constraints, and heightened global uncertainties.

The report noted that while Sri Lanka experienced a rebound in industrial output and rising construction activity in 2024, these gains are likely to moderate this year. The World Bank cited “structural impediments to growth” and a challenging external environment as key factors contributing to the slowdown.

In contrast to Sri Lanka’s outlook, several other South Asian economies are projected to show stronger growth.

India, the region’s largest economy, is expected to expand by 6.3% in FY25/26, while Pakistan and Bangladesh are forecast to grow by 3.1% and 4.9%, respectively, over the same period.

Overall, regional growth in South Asia is expected to ease to 5.8% in 2025 before rebounding to an average of 6.2% in 2026-27.

The World Bank also warned of multiple downside risks for the region, including escalating global trade tensions, tightening financial conditions, and the potential for natural disasters and social unrest.

These risks could further undermine investor confidence and disrupt the recovery path of vulnerable economies like Sri Lanka.

Despite the headwinds, the report suggests that reforms and improved global conditions could help support medium-term growth.

However, for Sri Lanka, a sustained recovery will depend heavily on structural reforms, debt sustainability efforts, and greater resilience to external shocks.