COLOMBO, Sri Lanka – 02 October 2026 – The Central Bank of Sri Lanka (CBSL) has released its latest “Monthly Economic Indicators – August 2026” report, offering a comprehensive snapshot of the nation’s economic performance. The data, compiled by the Statistics Department and officially released on 1st August 2026, reveals a mixed economic landscape characterized by moderate GDP growth, persistent inflationary pressures, and a notable widening of the trade deficit.
Moderate GDP Growth Amidst Sectoral Shifts
Sri Lanka’s Gross Domestic Product (GDP) at constant (2015) prices recorded a provisional year-on-year growth of 4.2 percent in the 2nd Quarter of 2026, a deceleration from the 5.0 percent growth observed in the corresponding quarter of 2025. The industrial sector emerged as a primary driver, growing by 7.3 percent and contributing 2.0 percentage points to the overall GDP growth. The services sector also expanded, registering a 2.7 percent increase and adding 1.5 percentage points. However, the agriculture sector contracted by 2.3 percent, negatively impacting overall growth by 0.2 percentage points.
Inflationary Pressures Remain Elevated
Inflation continued to be a key concern, with both national and Colombo-based consumer price indices showing significant year-on-year increases for August 2026. The National Consumer Price Index (NCPI) recorded an 8.1 percent year-on-year change (August 2021=100), up from 1.5 percent in August 2025. Similarly, the Colombo Consumers Price Index (CCPI) saw an 8.0 percent year-on-year increase (August 2021=100), compared to 1.2 percent in the previous year.
External Sector Faces Headwinds with Widening Trade Deficit
The external trade balance for July 2026 presented a challenging picture. Exports declined by 5.3 percent year-on-year to US$ 1,233 million, while imports surged by 19.6 percent to US$ 2,251 million. This resulted in a substantial widening of the trade deficit to US$ 1,018 million in July 2026, compared to US$ 580 million in July 2025. Cumulatively, from January to July 2026, the trade deficit reached US$ 6,507 million, a significant increase from US$ 3,850 million in the same period of 2025.
On a positive note, total reserves showed an increase, reaching US$ 13,247 million by the end of July 2026. Workers’ remittances also saw a healthy increase of 10.0 percent year-on-year in August 2026, reaching US$ 749 million, providing crucial foreign exchange inflows.
The tourism sector displayed mixed performance in August 2026, with tourist arrivals decreasing by 3.3 percent to 191,704 compared to August 2025. However, earnings from tourism managed a modest increase of 2.1 percent, reaching US$ 264 million.
Fiscal and Monetary Developments
Government finance data for January-July 2026 indicated robust revenue collection, with total revenue and grants increasing by 25.1 percent year-on-year to Rs. 3,421,259 million. Recurrent expenditure also saw an increase of 4.9 percent, totaling Rs. 3,149,133 million.
In the monetary sector, broad money supply (M2b) grew by 12.1 percent year-on-year by end-July 2026, reaching Rs. 17,043.5 billion. Credit extended to the private sector showed a notable increase of 12.1 percent year-on-year by end-July 2026, signaling expanding economic activity, albeit against a backdrop of rising interest rates.
Interest rates saw an upward adjustment in August 2026, with the Overnight Policy Rate (OPR), Standing Deposit Facility Rate (SDFR), and Standing Lending Facility Rate (SLFR) all increasing by 100 basis points. Treasury bill yields also rose, with the 364-Day bill reaching 9.89 percent, up 186 basis points from August 2025.
Key Sectoral Highlights
- Agriculture: While tea and rubber production saw slight declines in July, coconut production recorded a significant 30.1 percent year-on-year increase for January-June 2026. However, marine fish production fell by 20.0 percent in July.
- Industrial Production: The Index of Industrial Production (IIP) for the manufacturing sector saw a marginal increase of 0.2 percent in July 2026. Strong growth was observed in paper and paper products (29.1%), wood products (20.5%), and leather products (17.1%), while some sectors like chemicals (-17.5%) and rubber and plastic products (-19.3%) contracted.
- Energy: Electricity generation increased by 5.6 percent in June 2026. Diesel sales were up 15.5 percent in July, and crude oil imports saw a dramatic 108.4 percent rise, indicating increased economic activity.
- Construction: The Purchasing Managers’ Index (PMI) for Construction maintained activity above the neutral 50-point mark at 59.4 in August 2026. Cement production, both local and total supply, increased by 9.8 percent and 8.0 percent respectively in July.
- Transport: New registrations of motor vehicles surged by 23.5 percent in August 2026 and an astonishing 159.5 percent for January-August 2026, reflecting a significant increase in consumer spending and business investment in transport assets. Three-wheelers recorded a particularly high growth of 756.0 percent in July.
- Share Market: The All Share Price Index (ASPI) saw a modest year-on-year increase of 1.6 percent by end-August 2026, with market capitalization growing by 4.1 percent.
- Employment: The unemployment rate for the 1st Quarter of 2026 showed a slight improvement, standing at 3.7 percent, down from 3.8 percent in the previous year.
The August 2026 economic indicators paint a picture of an economy in transition, demonstrating resilience in some sectors like industry, services, and remittances, while grappling with inflationary pressures and external trade imbalances. Vigilant policy management will be crucial to sustain growth momentum and address emerging challenges.
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