Sri Lanka economy reports 4.8% growth in Q1

Sri Lanka’s economy grew 4.8 per cent year-on-year (YoY) in the first three months of 2025, official data showed on Monday, indicating a strengthening recovery from its worst financial crisis in decades.

Sri Lanka’s agriculture sector shrank by 0.7 per cent in the first quarter from a year earlier, but industrial output expanded by 9.7 per cent, and services grew by 2.8 per cent, the census and statistics department said in a statement.

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

But it made a stronger-than-expected recovery last year, posting 5.0 per cent growth as measures implemented under a $2.9 billion, four-year bailout from the International Monetary Fund (IMF), secured in March 2023, bore fruit.

“We expect growth to be less in the second quarter due to taxes and higher power prices, but we are bullish on growth in the second half of the year,” said Dimantha Mathew, head of research at First Capital.

“We expect full year growth to be between 4.0 per cent and 5.0 per cent.”Colombo hiked power prices by 15 per cent last week in its effort to secure IMF executive board approval for the fifth, $334 million, tranche in its programme.

Sri Lanka has made substantial progress on IMF-supported reforms, but more work is needed to reduce the Asian country’s 24.5 per cent poverty rate, tackle corruption and reduce domestic debt, Gita Gopinath, the IMF’s first deputy managing director, said during a meeting with officials and economists in Colombo on Monday.

Sri Lanka plans to discuss strategies with the IMF to lure foreign investment, President Anura Kumara Dissanayake said on Monday.Sri Lanka started talks with the United States after Washington imposed tariffs of 44 per cent in April on its exports of about $3 billion. The tariffs were later suspended.The World Bank estimates the island will grow 3.5 per cent this year.