AGP Executive Report

Monetary Policy: The Central Bank defended its 5% inflation target through October 2029, saying a lower target could constrain growth. Growth Outlook: The ADB forecasts 4% growth for Sri Lanka in 2026, ranking it 18th among Asia’s fastest-growing economies. Trade and Investment: India and the US are exploring joint investment in ports and digital infrastructure across the Indian Ocean, including Sri Lanka. Separately, Montana Governor Greg Gianforte’s trade mission explored opportunities in agriculture, industrial hemp, advanced manufacturing and Sri Lankan graphite. Tourism: An Indian investor urged Sri Lanka to launch a dedicated campaign in India and restore Colombo–Kolkata flights, arguing the market could help lift arrivals and visitor spending. IMF Talks: Sri Lanka is discussing a possible long-term, growth-focused programme after its current IMF arrangement ends in March 2027.

Digital Trade: ODI Global urges Sri Lanka to include enforceable rules on e-commerce, data flows and e-signatures in future trade deals; its survey found 70% of exporters already sell online. Energy Investment: The Government is pitching four Mannar Basin oil and gas blocks, covering 33,964 sq km, to global investors, with bids due in February 2027. Banking Governance: Scrutiny of NDB’s Rs. 13.6 billion fraud is intensifying, with the audit regulator’s findings due within two weeks. CBSL says deposits and financial stability are unaffected. Growth and Households: The World Bank raised its 2026 growth forecast to 4.4%, but says recovery remains uneven, with two in five Sri Lankans poor or vulnerable. Business and Tourism: Boston Consulting Group sees growing demand for its services and identifies finance, agriculture, tourism, logistics and apparel as growth sectors. The Government has also begun a five-year tourism branding campaign, with Rs. 930 million allocated for 2026.

Northern Investment: The BOI plans to open investor reservations for the Paranthan Export Processing Zone by November, with infrastructure work at Paranthan and Kankesanthurai set to begin in January. Markets: Sri Lankan shares rose 0.41% on Friday to 20,316.91, led by utilities, though turnover fell and foreign investors were net sellers. Banking: Seylan Bank says its assets topped Rs. 1 trillion in September, making it the fourth private bank to reach the milestone. Consumer Spending: A BCG survey found 77% of consumers expect spending to rise over the next six months, but only 38% expect higher incomes, pointing to continued pressure on household budgets. Economic Outlook: The government is discussing a new long-term, growth-focused IMF arrangement after March 2027. Energy and Governance: The fuel import bill has reportedly surged 62% as supply pressures deepen, while a parliamentary committee puts losses linked to the coal controversy at Rs. 17.965 billion.

Treasury Market: T-bill yields edged up 1 basis point on 91-day bills and 3 points on 182-day bills; the 364-day rate held at 9.95%. The Government raised the full Rs. 80 billion on offer. Financial Stability: Global risks now top the Central Bank’s concerns, making up 26% of risks cited in its latest survey, nearly double the share six months earlier, though confidence in the financial system improved. Banking Governance: NDB’s final audit puts fraud-related losses at Rs. 13.64 billion over 2016–26, highlighting serious oversight failures; the bank says customer accounts were not affected. Energy Costs: Fuel imports cost Sri Lanka US$4.07 billion in the first eight months of 2026, up 61.6% year on year and adding pressure to foreign exchange and domestic prices. IMF Strategy: The Government says talks are under way on a growth-focused arrangement after the current IMF programme ends in March 2027. Credit Access: A BCG study finds borrowing remains concentrated among wealthier households: only 19% of consumers have credit cards, pointing to room to broaden access to financing.

IMF Outlook: Sri Lanka is discussing a successor programme as its current IMF deal is expected to end in March 2027, with the Government seeking a shift from crisis support to long-term growth. Digital Business: LOLC Finance’s iPay Business has launched a digital payments and business-services platform for merchants, while a new survey found about 70% of surveyed exporters already use e-commerce — though payments, paperwork and delivery remain hurdles. Markets and Prices: The Colombo market fell 1.4% on Thursday, led by IT and utilities shares, as September inflation remained at 8%. Household Recovery: Poverty has eased from its 2023 peak but remains well above pre-crisis levels: the World Bank estimates 16.9% of Sri Lankans were poor in 2025 and projects 15.8% in 2026. Trade: Sri Lanka’s first dedicated Ceylon Tea pavilion at the Saudi Food Show sought to build on a 15% rise in exports to Saudi Arabia compared with 2024.

Prices and Growth: Sri Lanka’s headline inflation held at 8% in September, while GDP grew 4.2% in the second quarter, according to Central Bank data. Financial Crime: The FCID arrested a 25-year-old man accused of transferring US$25 million abroad through fictitious companies and fake import orders between 2024 and 2025. Markets and Funding: Bond yields edged up as trading picked up; a staff-level IMF agreement on the seventh review could unlock US$345 million in funding, subject to approval. Recovery Outlook: The World Bank raised its 2026 growth forecast to 4.4%, but warned that two in five Sri Lankans remain poor or vulnerable despite the recovery. External Pressures: Fuel imports cost Sri Lanka US$4.07 billion in the first eight months, up more than 60% year on year, underscoring the pressure on the country’s external finances.

Recovery & Poverty: The World Bank raised Sri Lanka’s 2026 growth forecast to 4.4% and says the economy has returned to pre-crisis levels, but two in five people remain poor or vulnerable. Markets: The rupee weakened against the US dollar and bond yields edged up as trading picked up, with an Rs. 80 billion Treasury bill auction in focus. Trade & Energy: Colombo port container volumes rose 10% in the first eight months, while fuel imports cost US$4.07 billion; reports of fuel shortages and queues persist despite the CPC chairman saying there is no shortage. Policy & Investment: An economic census will cover agriculture and businesses in 2026–27, while CMA Sri Lanka has submitted Budget 2027 proposals. Sri Lanka also secured US$57.4 million for rooftop solar and virtual net metering. Public Accountability: Shiranthi Rajapaksa was arrested and remanded over allegations that Rs. 10 million donated by a state bank to her charity for a children’s hospital scanner was misused.

IMF & Growth Outlook: The World Bank says Sri Lanka’s economy has returned to pre-crisis output levels, lifting its 2026 growth forecast to 4.4%, while warning recovery is still “slow, incomplete and uneven” and inflation is edging up. IMF Programme Update: Sri Lanka has reached a staff-level pact with the IMF for the seventh EFF review, unlocking a further US$345m, but the next step hinges on a 2027 budget aligned with programme targets and progress on debt restructuring. Fuel & Public Confidence: CPC Chairman says recent fuel queues were driven by private firms cutting daily releases and panic buying from social media, while a union claims shortages are again hitting Auto Diesel and Petrol 92. Trade & Ports: Colombo Port container volumes rose 10.3% to 5.99m TEUs in Jan–Aug, led by transshipment, and Colombo West International Terminal marked 2m TEUs and commissioned Phase 2 to lift capacity to 3.2m TEUs. Cybercrime Crackdown: Sri Lanka is stepping up action against cyber scams and forced criminality, with NAHTTF and IOM briefing partners on emerging scam networks. Local Business & Payments: Homegrown delivery platform Ting launches multi-vendor ordering and built-in bill splitting, while Sampath Bank and others push digital payments and merchant services. Energy/Industry: CPC inaugurated the JET A-1 pipeline and fuel tank projects as part of energy security efforts.

Fuel Supply & Pricing: Sri Lanka is seeing fresh fuel queues, with the petroleum workers’ union alleging shortages of Lanka Auto Diesel and Petrol 92 Octane and blaming the Government for not ensuring adequate supply; it also claims private fuel firms slow releases when prices fall, while the energy minister says private operators are restricting market supply due to losses under regulated pricing, pushing more burden onto CPC. Vehicle Imports: In Parliament, the deputy economic development minister said Sri Lanka has imported over 800,000 vehicles worth about USD 3.8bn since 2024, with foreign reserves around USD 6.9bn and a target of USD 8bn by year-end. IMF Update: The IMF said its staff-level agreement on the Seventh EFF review is not linked to a successor programme request, and is tied to budget presentation and financing assurances before Executive Board approval. Growth, Jobs & Poverty: The World Bank says the economy has returned to 2018 levels after 12 quarters of expansion, but household incomes, employment and poverty remain weaker; it projects 4.4% GDP growth in 2026 and highlights agribusiness as a key growth driver. Trade with India: Sri Lanka exported over USD 1bn to India in 2025, with ISFTA preference use rising to 61.27%, while an ADB study estimates USD 808m in unrealised annual export potential. Digital & Payments: Sampath Bank and Bancstac partner to bring Google Pay to Sri Lanka merchants, while Wise launches flexible eSIM data plans and cross-border QR payments to tackle “arrival anxiety.” AI & ICT Recognition: Sri Lanka’s PR Wire ranks #282 globally in PRovoke’s Top 300, and the country’s first National AI Awards 2026 and 28th National ICT Awards recognise local innovation and digital leadership.

IMF Deal Watch: Sri Lanka reached a staff-level agreement with the IMF on the seventh EFF review, paving the way for about US$345m financing and keeping the budget and growth calendar on track. ADB Development Pipeline: The government and the Asian Development Bank discussed priorities for 2026–2029, focusing on project selection, faster delivery, and better use of limited concessional funds. Energy & Cost Pressures: Reports highlighted how fuel import costs remain heavy, with the fuel bill jumping sharply year-on-year, while the central bank signalled inflation risks tied to the Middle East conflict. Trade & Food Security: India’s NCEL and Sri Lanka’s COOPFED signed an MoU to facilitate supply of essential food items, alongside talks on updating the India–Sri Lanka Free Trade Agreement. Digital & Telecom Cooperation: Pakistan and Sri Lanka plan a joint working group to expand cooperation in IT and telecommunications, including fintech and startup linkages. Financial Sector Literacy: Sri Lanka’s insurance regulator launched an inter-university quiz to boost insurance education and financial literacy ahead of the InsureChamp 2026 event. Governance & Rights: Human Rights Watch criticised Sri Lanka’s proposed counterterrorism bill for retaining abusive powers, warning it could jeopardise EU trade benefits under GSP+. Corporate/Business Moves: Dialog promoted new Galaxy Z Fold devices, while multiple business updates pointed to ongoing investment and market activity.

IMF Deal: Sri Lanka reached a staff-level agreement with the IMF for the seventh EFF review, paving the way for about US$345m once the Executive Board approves—conditional on the 2027 Budget and financing assurances, as the IMF flags risks from energy prices, El Niño and the Middle East. Energy & Grid Upgrade: The government signed an ADB financing package for a $35m concessional loan plus EU and Japan grants to modernise EDL’s network with smart meters, distribution management and virtual net metering under a 2026–2030 clean energy push. Tourism Watch: September arrivals slipped 0.26% to 158,557, just 414 short of the 2025 record, with Indian arrivals up 10% month-on-month to 51,931. Trade Facilitation: Sri Lanka Customs began mandatory paperless declarations and digital signatures, aiming to speed clearance and support export competitiveness. Banking & Consumer Finance: Union Bank adopted BPC SmartVista to modernise its credit card platform and expand card services faster. Exports: Garment export earnings fell 7.4% in August year-on-year, extending a broader textile/apparel slowdown. Housing Delivery: Government-assisted houses for 5,000 families are set for handover on World Habitat Day, targeting 13,000 households living in unsafe conditions. Regional Labour Protection: Sri Lanka’s Voice of Migrants and the Maldives Trade Union Congress agreed a cooperation framework to improve information access and grievance support for Sri Lankan migrant workers. Food Supply Link: NCEL and COOPFED signed an MoU to facilitate supply of essential food items from India to Sri Lanka.

IMF Deal: Sri Lanka has reached a staff-level agreement with the IMF for the seventh review of its Extended Fund Facility, unlocking about US$345m (SDR 254m) pending Executive Board approval, with conditions including the 2027 Budget being tabled in line with programme parameters and a financing assurances review plus progress on debt restructuring. Energy Costs: Fuel imports surged to US$4.07bn in the first eight months of 2026, up 61.6% year-on-year, with August alone costing US$450.6m (+76.5%), raising pressure on domestic fuel pricing and the wider import bill. Solar & Grid Upgrade: Sri Lanka signed agreements for a rooftop solar and Virtual Net Metering project worth US$35m concessional ADB loan plus EU and Japan grants, aiming to upgrade EDL systems, improve reliability, and expand renewable uptake. Capital Markets & Insurance: Sanasa Life plans a Rs. 1.05bn rights issue and may sell part/all of its 53.5% stake in Sanasa General Insurance; Softlogic Life achieved ISO/IEC 27001:2022 certification to support its digital expansion. Banking & Markets: Ceybank marked 35 years of stability; bond market yields saw a see-saw pattern and closed lower/steady across the curve. Public Services & Inclusion: Government plans inclusive, secure AI-powered public services built around a “One Citizen One ID” approach. Land for Development: Security forces released 187.56 acres in Kankesanthurai, Jaffna, for civilian use and future investment.

Fuel & Inflation Watch: Sri Lanka’s fuel import bill jumped to US$4.07bn in the first eight months of 2026, up 61.6% year-on-year, with August alone costing US$450.6m (+76.5%). Energy Policy: The central bank kept its key rate at 8.75%, warning inflation may stay high for the next six months due to the Iran war, while the cabinet approved a Rs. 40.65bn diesel subsidy for three months. Governance & Compliance: The FCID widened probes into suspected foreign exchange violations, adding 17 companies to a network allegedly remitting about Rs. 190bn overseas under fake import claims. Public Safety for Seniors: HRCSL urged the IGP to set up a dedicated police unit for senior citizens to tackle rising rights violations and improve complaint handling. Business & Trade: Sampath Bank’s Economic Forum 2026 focused on moving from stabilisation to sustainable growth, while the gem industry was invited to JEWELS 2026 (Dec 4–6) to reach global buyers. Housing Delivery: Government plans to hand over 5,000 homes on World Habitat Day, targeting 30,000 houses by year-end.

Fuel & Inflation Watch: Sri Lanka’s fuel import bill jumped 61.6% to US$4.07bn in the first eight months of 2026, up from US$2.52bn a year earlier, with August imports rising 76.5%—while the central bank kept the policy rate at 8.75% and warned inflation stays high for the next six months due to the Iran war. Transport & Energy Security: The government has kicked off CPC’s Jet A-1 pipeline and new aviation fuel storage tanks in Muthurajawela, aiming to cut logistics costs and secure jet fuel supply; cabinet also approved a diesel subsidy for three months. Vehicle Procurement: The Finance Ministry opened bids for 1,000 new 4WD automatic diesel double-cab vehicles, alongside other equipment tenders, with revised specs potentially widening supplier eligibility. Construction Bottlenecks: A Central Bank construction survey says bitumen shortages are slowing road works even as new orders pick up. Governance & Compliance: The Foreign Ministry denied US warnings of Sri Lanka-specific secondary sanctions over services to Iranian-linked vessels; meanwhile, allegations of procurement irregularities at the main airport could cost the state revenue. Human Rights & Social Policy: The HRCSL urged the IGP to set up a special police unit for senior citizens, as rights violations against elderly people are reported to be rising.

Foreign Policy & Trade: Sri Lanka’s Foreign Ministry says the US secondary sanctions announced on Aug 24 are a global policy, not a Sri Lanka-specific warning, after reports linked to Iranian tankers near Sri Lankan waters. Aviation & Infrastructure: President Anura Kumara Dissanayake backed the start of CPC’s Jet A-1 pipeline and new Muthurajawela fuel storage tanks to secure aviation fuel supply and cut logistics costs. Construction Watch: A Central Bank survey says a continuing bitumen shortage is slowing road construction and weighing on construction growth, alongside skilled labour and material price pressures. Airport Procurement Risk: Allegations of procurement irregularities at Sri Lanka’s main airport could cost the state tens of millions of rupees, with claims that tender rules were breached over commercial unit leasing. Education & Local Economy: The government allocated LKR 33,600 million for the 2026 School Meals Program, aiming to expand coverage to 1.5 million students and link nutrition with local economic benefits. Digital Finance (Regional): India’s UPI surged in H1 FY27 to 145 billion transactions (up 27%), ahead of new MDR rules from Oct 15. Business & Innovation: XpressJobs’ AI Recruitment Assistant won at Sri Lanka’s National AI Awards 2026, highlighting WhatsApp-based candidate engagement.

Energy Security Push: President Anura Kumara Dissanayake kicked off fuel storage expansion in Muthurajawela, including a 21-km aviation fuel pipeline to Katunayake and five new tanks (90,000 cu m), aiming to lift reserves from about 23–25 days to at least 45 days and reform the fuel subsidy mechanism. Anti-Corruption Capacity: CIABOC plans 23 regional offices and will recruit 971 staff, supported by a USD 2.5m Japanese grant for equipment, as it aligns expansion with IMF commitments and an anti-corruption action plan. Skills for Jobs: The ADB approved a $100m results-based loan to transform Sri Lanka’s TVET system (2027–2031), targeting better links between training and employment for 100,000+ youth. Digital Payments Watch: India’s UPI surged 27% to about 145 billion transactions in H1 FY27, with a new MDR on high-value merchant payments starting Oct 15—useful context for Sri Lanka’s own cashless push. Connectivity Reality Check: Dialog says its 5G covers all 25 districts, but its own reporting suggests population coverage under 40%, raising questions about marketing vs on-ground reach. Business Innovation: Sampath Bank launched “Sampath Book Finder,” a community-powered platform to help fairgoers locate books faster at the Colombo International Book Fair. Trade/Investment Climate: A US assessment says Sri Lanka’s FDI remains far below what’s needed for productive transformation, citing regulatory unpredictability and delays. Ports & Sanctions Risk: Reports highlight how US sanctions on Iranian shipping are stranding tankers near Sri Lanka, exposing local ports and service providers to secondary sanctions. Land for Development: Security forces released 187.56 acres in Jaffna (Kankesanthurai) for civilian use and a proposed investment zone, after decades under military use.