Sri Lanka Looks to Tourism and Flexible Monetary Policies to Drive 2026 Economic Growth

Published on December 15, 2025

Sri Lanka is expected to see steady growth in domestic income in 2026, with tourism and accommodative monetary policies emerging as major contributors, according to the Mastercard Economic Institute (MEI) in its Economic Outlook for 2026. Despite strong domestic fundamentals, the economy faces potential headwinds from global supply chain disruptions, trade volatility, and climate-related pressures.

The report emphasizes that Sri Lanka’s economic momentum remains resilient, supported by private consumption, investment, low inflation, remittance inflows, and rising tourism earnings. Tourism, in particular, is becoming a central pillar for external revenue generation, local business development, and community-level economic benefits.

Between January and October this year, tourism earnings grew by 4.9% year-on-year, reaching $2.6 billion. While modest, this growth highlights the sector’s ability to sustain economic activity in challenging international conditions. The Central Bank of Sri Lanka has maintained the Overnight Policy Rate (OPR) at 7.75%, and earlier reductions in the OPR and Statutory Reserve Ratio (SRR) have increased liquidity, eased credit, and supported overall economic stability.

In response to global supply chain interruptions and market uncertainties, Sri Lanka, similar to other Asian nations, is relying increasingly on tourism as a stabilizing factor. Expanding tourism beyond traditional urban and coastal hotspots is emerging as a strategy to diversify income, promote small businesses, and generate regional economic opportunities.

Inland and southern destinations are drawing increasing attention from travelers. The central highland town of Ella, for instance, has recorded a notable share of tourism transactions, reflecting the growing appeal of scenic, cultural, and wellness experiences. Meanwhile, southern coastal areas are experiencing steady growth driven by experiential tourism and longer visitor stays. Towns such as Ahangama, Weligama, Dickwella, Matara, and Mirissa have all shown consistent increases in transactions, demonstrating the emergence of new tourism corridors. Ahangama accounts for just over 6% of total transactions, Weligama nearly 5%, Dickwella around 3.9%, Matara 3.2%, and Mirissa 3%, highlighting a shift in tourism dynamics. Traditional hotspots like Kandy and Galle remain relevant but have seen slight declines, indicating that tourists are exploring beyond conventional destinations.

Looking forward, MEI forecasts Sri Lanka’s GDP growth to moderate to 3.7% in 2026, down from 4.4% in 2025. While the economy is projected to grow at a slightly slower pace, domestic demand, tourism expansion, and supportive monetary measures are expected to sustain momentum. At the same time, external vulnerabilities remain significant. High tariffs from major trading partners could challenge labor-intensive export sectors such as textiles, gems, and jewelry, while tighter immigration and mobility regulations may affect IT services and remittance flows.

The report also highlights opportunities arising from regional and bilateral trade agreements. By diversifying supply chains, expanding export-oriented industries, and developing business and technology hubs in secondary cities, Sri Lanka can foster balanced growth while enhancing its competitiveness in global markets.

Tourism continues to play a central role in this strategy. By promoting inland and southern destinations, improving infrastructure, and offering diverse experiences, the country is spreading economic benefits more evenly across regions. Experiential travel, cultural tourism, and extended stays are helping smaller towns emerge as important contributors to national tourism revenue, creating local employment and strengthening community livelihoods.

The combination of strategic monetary policies and an expanding tourism sector positions Sri Lanka for sustainable economic growth in 2026. By investing in lesser-known destinations and enhancing visitor experiences, the country is creating a resilient model of development that balances urban and regional growth.

Sri Lanka’s approach underscores the importance of tourism not only as a revenue generator but also as a tool for broader economic stability. As global uncertainties persist, the focus on flexible monetary policies and diversified tourism offerings provides a foundation for continued economic resilience and long-term growth.