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The Asian Development Bank (ADB) said yesterday that growth in Sri Lanka will be held back in 2026 by new US tariffs on key exports, even as momentum remains intact this year.

“These developments will likely tamp down the impact on the economy this year from a 20% tariff imposed on Sri Lankan exports to the US, mostly garments and rubber. But the tariffs will be more of a headwind, holding back external sector performance and consumption in 2026 because of possible job losses, both directly and indirectly,” the ADB said in its latest report released yesterday titled ‘Asian Development Outlook: Growth Slows as New Global Trade Environment Takes Shape’.

It said that US tariffs have soared to historic heights amid continued elevated trade policy uncertainty. Though generally lower than announced on 2 April, the additional tariffs that took effect in August are historically high. From 2.4% in 2024, the average effective US tariff rate has surged to 17.4%, the highest since the Great Depression of the 1930s.

Trade policy uncertainty remains at very high levels, despite easing from April’s peak, the ADB said.

“Uncertainty is fuelled by announcements of several bilateral US trade agreements without finalised terms, the prospect of new US sectoral tariffs on pharmaceuticals and semiconductors, and possible revisions to tariffs already in place”.

For Sri Lanka, ADB said growth in 2025 is forecast to remain unchanged at 3.9%, supported by manufacturing, construction and services, after the economy expanded by 4.8% year on year in the first quarter. It forecasts growth to slow down to about 3.3% in 2026.

Industrial production rose 5.1% in the first half, approaching pre-crisis levels, while private credit grew 19.6% in July, driven by vehicle imports, low interest rates and a favourable business outlook.

Inflation returned in August after months of deflation, though price pressures remain subdued. Headline inflation fell 1.7% year on year in the first eight months of 2025, compared with a 0.5% increase a year earlier, as transport and energy costs declined.

The Central Bank cut its policy rate by 25 basis points in May and held it at 7.75% in July. Average inflation for 2025 has been revised down significantly to O.5% while the 2026 forecast is unchanged at 4.5% on expectations of gradually rising food and energy prices.

The current account surplus grew by 30.2% in the first half of 2025 on the back of strong remittances and steady tourism earnings. Imports rose 12.4% during the period, reflecting a surge in vehicle imports, while exports grew 5.7%.

Workers’ remittances rose 19.3% and tourism earnings increased 8.4%. Gross official reserves stood at $ 6.2 billion at end-August, covering 3.7 months of imports, only slightly higher than December 2024, as debt service payments resumed.

The IMF completed Sri Lanka’s fourth Extended Fund Facility review in July, with disbursements totalling $ 1.74 billion so far. Debt restructuring moved forward with agreements reached with France, India, Hungary, Japan, Saudi Arabia and the United Kingdom in 2025.

The ADB said risks remain elevated. These include a stronger-than-expected impact from the US tariffs, volatility in the Middle East affecting remittances, swings in energy prices, and a potential global slowdown that could weaken tourism and external demand. Domestically, weather-related disruptions could weigh on agriculture and food prices.

In August, economic think tank Institute of Policy (IPS) warned that the 20% reciprocal tariff unilaterally imposed by the Trump administration could lead to export losses of $ 634 million and put nearly 16,000 jobs at risk, mostly female workers in the apparel industry.

With a quarter of Sri Lanka’s total exports facing at least a 20-percentage-point increase in tariffs, the trade-weighted effective tariff rate will be 29.9%, compared to 10.20% in April 2025. Sri Lanka’s main exports to the US, apparel and rubber products, will face effective tariff rates of 36.8% and 20.2%, respectively, it said.

Institutional corruption persists, particularly within sectors protected by entrenched vested interests, even under the current government, though high-level political bribery solicitation appears to have diminished, according to the U.S. statement on Sri Lanka’s investment climate.

The report, released recently, said endemic corruption and a lack of transparency in public procurement have historically inflicted significant economic losses on Sri Lanka, and these factors deter foreign direct investment, particularly in large infrastructure sectors where top global companies often remain absent.

The statement on Sri Lanka says that despite legal prohibitions, practices such as accepting unsolicited project proposals and tailoring tender specifications to favour specific companies reportedly remain common.

The government strengthened its anti-corruption framework by passing comprehensive legislation in July 2023 aimed at enhancing enforcement capabilities.

The President has publicly committed to eradicating corruption and enhancing governmental transparency. Provisions addressing conflicts of interest remain vague, and enforcement mechanisms are ineffective.

Listed companies generally have codes of conduct to prohibit bribery of public officials. However, privately owned companies – especially those involved in infrastructure projects and imports – do not generally adhere to these guidelines. Sri Lanka is a party to the United Nations Convention Against Corruption (UNCAC), according to the report.

Sri Lankan President Anura Kumara Dissanayake and Japanese Prime Minister Ishiba Shigeru reaffirmed their commitment to deepening bilateral security and strategic cooperation during high-level talks in Tokyo on Monday. The meeting marked a significant step in advancing defense collaboration and regional stability in the Indo-Pacific.

Both leaders emphasized the importance of enhancing Sri Lanka’s security and deterrence capabilities to safeguard peace in the Indian Ocean Region. In a landmark move, Japan announced the provision of advanced Unmanned Aerial Vehicles (UAVs) to Sri Lanka under its first Official Security Assistance (OSA) initiative. The UAVs will bolster maritime surveillance and disaster relief operations, reinforcing Sri Lanka’s role in maintaining regional security.

President Dissanayake expressed gratitude for Japan’s continued support in humanitarian and post-conflict initiatives, particularly its longstanding contribution to Sri Lanka’s mine action program. Japan’s assistance in demining has been instrumental in advancing national reconciliation and community development in former conflict zones.

The two leaders also exchanged views on regional and global issues, reaffirming their shared commitment to a Free and Open Indo-Pacific and a rules-based international order. Both sides underscored the importance of multilateralism, democracy, and adherence to international law, particularly the 1982 United Nations Convention on the Law of the Sea (UNCLOS), to ensure freedom of navigation and overflight in maritime domains.

A harthal is set to be launched today in Mannar in protest against the government’s decision to continue with the Mannar wind power project, Jaffna District MP Ramanathan Archchuna said. He urged public participation in the protest.

Speaking to the media, Archchuna said local residents oppose the continuation of the project, which was initially proposed during the Ranil Wickremesinghe government.

“Before coming to power, the government promised to halt the existing Thambapawani Wind Power Plant, as well as the Adani Group’s wind power project in Mannar,” he said.

Archchuna added that several Mannar residents met with the President, requesting the cancellation of the wind power projects, which they claim have caused significant harm to the district. “The President asked for a month to discuss the matter with stakeholders and the people of Mannar, but no positive response was received,” he said, adding that the President had misled them.

He further said that protests began last Friday but were met with police action. “This harthal is not a political move against the government, but a protest reflecting the concerns of the people in Mannar. I personally do not participate in political hartals,” he said.

Archchuna warned that installing nearly 46 wind power plants could severely affect local livelihoods, disrupting traditional fishing activities and causing long-term ecological damage. “The wind power plants may collapse after 10 to 15 years, and disposing of the parts will require large land areas, further harming the environment and the local population,” he said.

He also claimed that no ecological study had been conducted prior to the installation of the wind power plants. “The current government, which initially opposed the project, has now granted permission to continue it, blaming its inception on the Ranil Wickremesinghe government,” Archchuna added.

“I was elected to parliament as an independent and have always stood with the people. I raise their concerns in parliament, and I firmly oppose the Mannar wind power project,” he said.

A meeting between former President Ranil Wickremesinghe and former President Mahinda Rajapaksa took place this morning (28) at Carlton House in Tangalle.

The meeting took place while former President Ranil Wickremesinghe was en-route from Kataragama to Colombo, according to a statement from the United National Party (UNP) media unit.

During the meeting, former President Ranil Wickremesinghe expressed his gratitude to former President Mahinda Rajapaksa for the role he played during the period when Wickremesinghe was imprisoned.

Former President Ranil Wickremesinghe also took steps to inquire about Mahinda Rajapaksa’s health and well-being during his visit to Carlton House, statement added further.