• IMF projects Kuwait, Qatar, Bahrain to shrink by more than 10% this year
• SL’s remittances still up, but growth has slowed
• Sharp Gulf rebound expected in 2027

The Gulf economies that host a large share of Sri Lanka’s migrant workers are set to contract sharply this year, the International Monetary Fund (IMF) projected on Tuesday (13). The forecast puts to the test a remittance stream that has so far withstood the Middle East war but has lost some of its momentum.

According to the IMF’s October 2026 World Economic Outlook (WEO), released at the IMF-World Bank Group (WBG) Annual Meetings in Bangkok, Kuwait’s economy is projected to shrink by 16.7% in 2026, Qatar’s by 15.6%, and Bahrain’s by 11.3%. The United Arab Emirates (UAE) is expected to contract by 3.9% and Saudi Arabia by 3.3%. Oman is the only major exception, with growth projected at 4.1%.

The IMF attributes the slump to disruptions to energy output and transport, and has built a longer closure of the Strait of Hormuz into its forecasts. It said that Saudi Arabia would be somewhat less affected than its neighbours because it has more diversified export routes. 

Growth across the Middle East and Central Asia is now projected at –0.3% this year, a downward revision of 2.2 percentage points from April.

The fund expects the downturn to be short-lived. It projects double-digit expansions in 2027 as production, exports, and logistics normalise, with Qatar growing by 18.8%, Kuwait by 17.1%, and Bahrain by 13.9%, while Saudi Arabia and the UAE are expected to rebound by 7.9% and 7.7%, respectively.

The report identifies remittances and tourism receipts as factors shaping the outlook for emerging and developing economies. It specifically warns that small island developing states face slower growth because of weaker tourism and remittances, alongside higher energy costs.

The stakes for Sri Lanka are high. Research by the Institute of Policy Studies of Sri Lanka (IPS) estimates that around half of the country’s remittances come from the Middle East, describing Sri Lanka as over-reliant on the region despite efforts to diversify. 

So far, those inflows have held up. Central Bank of Sri Lanka (CBSL) data show remittances of $ 6.13 billion in the first eight months of 2026, up from $ 5.12 billion in the same period last year. 

However, the pace of growth has eased. Remittances rose 26.5% year-on-year in the first quarter, but growth slowed to 9.3% in June and 10% in August. The CBSL has also noted that the figures may include other inflows, such as those received after Cyclone Ditwah. 

In March, CBSL Governor Dr. Nandalal Weerasinghe said that the bank was keeping a close watch on early indicators, including labour market conditions in the Middle East.