* Supports Govt’s reforms in key sectors
* Will remain a steadfast partner to secure a durable recovery
The Asian Development Bank (ADB) recommitted itself to support Sri Lanka’s Small and Medium sector Enterprises (SMEs) which have been going through struggles to survive.
The Manila-based lender said it will continue providing working capital, lend investment loans to businesses and strengthen the enabling environment for private-public partnerships in Sri Lanka.
The multilateral development bank said it will lend US$ 808 million like last year or more this year.
However, assistance for macroeconomic stability and key sectors of the economy will be subject to reforms, a senior ADB official said.
Sri Lanka’s economic recovery will continue, but it would remain fragile as debt repayment, US tariffs, and geopolitical tensions will overshadow growth prospects, the ADB’s Asian Development Outlook (ADO) stated.
ADO, the bank’s flagship economic publication for April 2025 forecasts Sri Lanka’s recovery to continue at a moderate growth of 3.9 percent in 2025 and 3.4 percent in 2026 following the strong rebound in 2024.
“Economic recovery that began in the second half of 2023 continued across all sectors in 2024. Inflation decelerated significantly in 2024 following major cuts in energy prices. Credit to the private sector picked up reserves continued to build up, while tourism and remittances inflows remained strong,” the ADO stated.
ADB expects recovery to continue in 2025 and 2026. “Difficult policy reforms are yielding significant improvements in the economy following the recent severe crisis,” said ADB Country Director for Sri Lanka, Takafumi Kadono during a media briefing on the first ADO for 2025 in Colombo last week.
“We are pleased to observe that Sri Lanka’s economy has stabilised and is progressing towards debt sustainability. It is essential to sustain reform efforts to mitigate debt vulnerability in the medium term and to establish a foundation for sustainable recovery, resilience building and growth revival,” he said. “The ADB will remain a steadfast partner in helping Sri Lanka to secure a strong and durable recovery,” Kadono said.
However, despite recent progress in fiscal discipline and debt restructuring, debt vulnerability remains high, the bank sources said.
They said that reducing debt to a sustainable level will take time, with the public debt to GDP ratio projected to fall below 95 percent only by 2032. More will be needed to address debt challenges and avoid distress.
“Sri Lanka must sustain efforts to build external and fiscal buffers and implement structural reforms to support trade and investments through private sector-led growth and other flows that do not add to the debt burden,” Kadono said.
As uncertainties from elections and debt restructuring fade, improved investor confidence will support private investment, although consumer demand will remain sluggish amid expected rising inflation, the development outlook for Asia stated.
It said that downside risks to growth outlook include trade uncertainty, including recently introduced US tariffs on imports from Sri Lanka, loss of reform momentum, and macroeconomic policy slippages.
“There is no certainty of tariff reversals from negotiations with the US. There may or may not be reversals to tariffs. Sri Lanka must negotiate to get lower tariffs and also adapt to new realities, tariffs and strengthen trade agreements,” said ADB Sri Lanka Resident Mission Senior Country Economist Lilia Aleksanyan. The world ADB’s growth forecasts were finalised prior to the April 2 announcement of new tariffs by the US, so the baseline projections only reflect tariffs that were in place previously. However, ADO April 2025 does feature an analysis of how higher tariffs may affect growth in Asia and the Pacific.
