Sri Lanka’s outlook in the near term has been marred with uncertainty due to the ongoing conflict in the Middle East, following a term of slower-than-expected growth recorded in 2025 due to cyclone Ditwah, Bloomberg’s global financial news service said in a report published yesterday (18).
“Sri Lanka’s economic growth slowed in the fourth quarter due to the impact of cyclone Ditwah, while the near-term outlook remains clouded by the Iran war. Gross domestic product grew 4.8% in the three months to December from a year earlier, the Department of Census and Statistics said on Tuesday, compared with 5.3% in the July-September period,” the report said.
“The growth picture comes as the conflict in the Middle East chokes energy supplies, drives up prices, and disrupts global shipping routes and air travel.”
It noted that the aforementioned global macroeconomic factors further lend to the foreboding outlook, as Sri Lanka has been reliant on its tourism revenues and remittances inflows – both of which are threatened amidst the war – to ensure continued stability, out of a period of default since 2022.
“The heightened instability threatens Sri Lanka’s rebound from its 2022 default, with the economy reliant on tourism receipts and remittance flows to boost reserves and stay on track with its International Monetary Fund loan programme.”
The report further added that Sri Lanka’s Central Bank Governor Nandalal Weerasinghe forecasted that growth is to remain close to 5%, even as “an extended conflict will have an adverse impact on the global economy with a prolonged effect on petroleum prices, tourism and supply chains.”
Additionally the report noted Sri Lanka’s four-day work week, declared by the Government on Monday (16). The intention of the holiday, as announced, was to conserve limited energy supplies within the nation, amidst growing supply risks of crude oil.
Sri Lanka has since also introduced a QR-code system to ration fuel consumption. Analysts warn that if the conflict is to continue, with global oil prices trading at elevated prices, this would inflate the nation’s import bill, and thereby add pressure to its BoP current account.
According to official data, Sri Lanka spends around $ 4.5 billion annually on fuel imports. However, oil prices were reported to drop on Wednesday after the American Petroleum Institute released data which showed an “increase in US crude oil inventories”, CNBC reported. Brent futures dropped by $ 1.15 to trade at $ 102.27 a barrel.
The Bloomberg report concluded by stating that Sri Lanka’s Industrial production expanded by 7.3% in the last three months of the year, from the growth seen in the first nine, with the services sector also expanding by 3.1%, and agricultural output having grown by 2.1%, citing data from the Department of Census and Statistics.