Construction sector leads recovery’s next chapter

• Record lending, rising FDI and stronger demand for building materials point to a broader revival in economic activity after years of contraction

Sri Lanka’s construction sector is emerging as one of the clearest beneficiaries of the country’s economic recovery, with rising bank lending, stronger foreign investment and growing demand for building materials signalling a broader revival in investment activity after years of contraction.

Industry data shows credit to the construction sector expanded 18.8 percent in 2025 to a record Rs. 1.81 trillion, while foreign direct investment into housing, hotels and commercial buildings rose 55 percent to US$ 173 million. Building material imports also increased 9.7 percent to US$ 1.02 billion, reflecting a gradual return of development activity across the country.

Sri Lanka’s recovery is increasingly being driven by investment rather than consumption alone, a shift economists and multilateral lenders have long argued is essential if the country is to sustain growth beyond the initial post-crisis rebound. An industry review published in Tokyo Cement’s latest annual report said lower interest rates, improving business confidence and easier access to financing helped revive construction activity during 2025, enabling developers, contractors and investors to restart projects that had been delayed during the economic crisis.

The construction sector expanded 9.2 percent in 2025, making it one of the fastest-growing segments of the economy, while cement consumption rose 16 percent to 5.29 million metric tonnes from 4.56 million metric tonnes a year earlier. Locally manufactured cement sales increased 25.7 percent during the year, supported by the revival in construction activity.

The review identified several major developments that supported the recovery, including the resumption of the Kadawatha-Mirigama section of the Central Expressway, progress on the Colombo Port Expansion Project, government-backed housing initiatives and growing investment activity linked to Colombo Port City.

Higher investment activity was also reflected in imports, with machinery and equipment imports rising 22 percent while building material imports surpassed the US$ 1 billion mark, pointing to a broader increase in capital expenditure across the economy.

Industry expectations remain positive heading into 2026.

“We are cautiously optimistic about the period ahead. Sri Lanka’s disciplined policy trajectory provides a sound platform for economic recovery, and the fundamental drivers of construction demand remain intact,” Tokyo Cement Chairman Dr. Harsha Cabral said in the company’s annual report.

Foreign direct investment into housing, hotels and commercial buildings is projected to increase further to around US$ 210 million this year, supported by reforms aimed at attracting large-scale investments and improving the ease of doing business.

The rebound has also begun to filter through to related industries. Demand for cement, concrete and other construction inputs strengthened during the year as stalled projects resumed and developers returned to the market. Construction PMI remained in expansionary territory throughout 2025, averaging 59.1, reflecting sustained growth in sector activity.

Despite the improvement, cement consumption remains below pre-crisis levels and large-scale construction projects remain limited compared with historical peaks. Industry capacity utilisation also remains well below levels recorded before the economic crisis, underscoring the scope for further growth if investment momentum is sustained.

Cabral also warned that global uncertainties could still pose risks to the recovery.

“While the outlook remains encouraging, escalating geopolitical tensions and an increasingly fragile global economic environment require continued vigilance,” he said.