Sri Lanka Economic Monthly – December 2025 – Deep Roots
This is Frontier’s monthly flagship report covering in detail Sri Lanka’s macroeconomic situation and our key forecasts. The December edition – ‘Deep Roots’ focuses on how the Sri Lankan economy continued on its recovery trajectory despite having to face a number of impactful internal and external shocks during the year.
The report is structured around an Executive Summary that highlights the key takeaways and sets out our views on the exchange rate and interest rates. This is followed by a detailed section that lays out our broader economic narrative for Sri Lanka, incorporating the latest data and developments.
The December story provides a broad overview on how the economy navigated the year amidst some serious shocks and how the strong macro fundamentals allowed to face them with much more resilience compared to the past. From Trump tariffs in April to Cyclone ‘Ditwah’ in December, 2025 turned out to be a year where the Sri Lankan economy was heavily tested. Despite these notable shocks and the added pressure of heavy motor vehicle imports, minimal multilateral support and massive debt repayments, the country still ended the year on a strong footing with healthy surpluses recorded on both the domestic fiscal and external current accounts. The story extends to connect this performance to the broad message we have been talking about for months now – a structurally different Sri Lankan economy – and provides an outlook for our broader expectations for 2026.
This month’s focus looks into how our Fiscal and External views are likely to change following the effects of the cyclone ‘Ditwah’. With the government’s 2026 supplementary spending estimate and the IMF’s Rapid Financing Instrument both in place, we can provide a clearer picture of the direct fiscal and external costs. While we set out the upper and lower bounds on how we think the fiscal and external costs will materialize, we are likely to further narrow these in early 2026 once detailed impact assessments are out.
For those interested in the key data points on Sri Lanka’s macroeconomic developments, the final section provides the latest on the trade balance, current account balance, reserves, exchange rate, interest rates, and inflation – including our forecast on CCPI inflation up to end-2026.
Our clients would have received the report to their emails and is accessible on our Athena reports platform since 22nd of December. If you still haven’t had a chance to read through click here! If not, please get in touch with us for a trial subscription to our reports (clientconnect@frontiergroup.info).