Sri Lanka growth slows to 4.2% on Middle East tensions
Sri Lanka’s economic growth slowed to 4.2 percent in the second quarter, the statistics office said Tuesday, as the country grapples with fuel shortages and a tourism slump triggered by the Middle East conflict.
Import-dependent Sri Lanka has raised fuel prices by about 50 percent as the war, which broke out in February, caused a surge in global energy costs.
Growth in April to June had slowed compared to this year’s first quarter, when the figure was at 5.1 percent, as well as year-on-year, down from 5.0 percent during the same period in 2025.
“The second quarter started with a somewhat gloomy outlook given the escalating tensions in the Middle East,” the statistics office said in a statement.
“That uncertainty mainly shaped economic activity… with a shortage of crude oil supply. Moreover, the adverse effects were more visible through subdued tourism performance.”
Inflation hit a 38-month high of 8.0 percent in August as prices of food and other essentials rose across the board.
The increase is well above the Central Bank of Sri Lanka’s 5.0-percent inflation target.
The government has warned that any prolonged conflict in the Middle East could threaten its fragile economic recovery from the 2022 meltdown, when the country ran out of foreign exchange to finance essential imports.
The government told the International Monetary Fund (IMF), which approved a $2.9-billion bailout in March 2023, that sustained high energy prices could undermine efforts to recover from the country’s worst economic crisis.
Under the IMF-backed reforms, Colombo is required to ensure cost recovery in fuel and electricity pricing while limiting subsidies that strain public finances.
Sri Lanka defaulted on its $46-billion foreign debt in 2022. Colombo has been drawing down the IMF bailout loan to stabilise the economy since then.
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