Sri Lanka’s economy is showing strong signs of recovery and long-term stability after years of turbulence, according to Ruchir Desai, Fund Manager at Asia Frontier Capital (AFC).
Growth has been steady, with the economy expanding by 5% in 2024 and by 4.8% in the first quarter of this year. Rising domestic consumption, higher business and infrastructure spending, and a tourism boom have been central to the turnaround. Visitor arrivals are expected to surpass pre-pandemic levels in 2025, making tourism once again a key driver of foreign exchange earnings.
This progress comes after a difficult period between 2018 and 2022, when political upheaval, the Easter Sunday attacks, the pandemic, and a sovereign debt crisis pushed the country to the brink. But reforms supported by the International Monetary Fund (IMF), tighter monetary policies, and the stabilisation of the rupee have helped restore confidence. Worker remittances have also picked up, providing crucial support to the economy.
The recovery has been mirrored in the stock market, with the Colombo All-Share Index surging nearly 200% in US dollar terms since early 2023—one of the best performances globally. Political stability has further strengthened the outlook after President Anura Kumara Dissanayake and his National People’s Power coalition secured sweeping election victories in late 2024.
“With the combination of economic and political stability, Sri Lanka now has a solid platform for sustained growth,” Desai noted, pointing to opportunities in tourism, logistics, and closer ties with India’s booming economy.
He cautioned, however, that momentum must be matched by continued reforms and infrastructure investment to avoid complacency. Still, with company valuations attractive and governance standards improving, Desai said Sri Lanka remains a top investment destination for AFC.
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