10 Jul 2026 - {{hitsCtrl.values.hits}}
Sri Lanka’s economic recovery could face fresh challenges from rising oil and food prices as the International Monetary Fund (IMF) warned that energy-importing economies remain vulnerable to renewed inflation and external sector pressures stemming from the Middle East conflict.
In its latest World Economic Outlook (WEO) Update released on Wednesday, the IMF projected global growth to slow to 3.0 percent in 2026 from 3.5 percent in 2025, as the economic fallout from the conflict offsets gains from a technology-led investment boom.
While the report does not provide a country-specific assessment for Sri Lanka, the island nation shares many of the characteristics highlighted by the IMF as being vulnerable to the current global environment, including dependence on imported fuel, exposure to commodity price fluctuations and reliance on tourism and remittance inflows.
The IMF expects crude oil prices to increase by nearly 32 percent in 2026 compared with last year, while food prices are projected to rise by 8 percent and fertiliser prices by 26 percent.
For Sri Lanka, which imports the bulk of its fuel requirements, higher energy prices could increase the import bill, place pressure on the trade balance and complicate efforts to keep inflation contained after the sharp disinflation seen since the 2022 economic crisis.
The report noted that economies with limited participation in the global technology value chain and heavy dependence on imported energy are likely to experience weaker economic activity than countries benefiting from the artificial intelligence-driven investment cycle.
The IMF also cautioned that higher food and energy costs could widen external imbalances and increase the risk of balance-of-payments pressures in countries with limited reserves and constrained policy space.
Sri Lanka continues to rebuild its foreign exchange reserves and strengthen external buffers under its IMF-supported reform programme following the sovereign debt default in 2022.
Global headline inflation is now expected to rise to 4.7 percent in 2026 from 4.1 percent in 2025 before easing to 3.9 percent in 2027, as higher energy and food prices interrupt the disinflation trend that has been in place since early 2024.
The IMF said central banks may need to maintain tighter monetary conditions for longer if inflationary pressures prove more persistent, while governments should avoid broad-based subsidies and instead provide targeted support to vulnerable households.
The report also highlighted risks to tourism and remittance-dependent economies if geopolitical tensions intensify and global growth slows further, potentially affecting two of Sri Lanka’s most important sources of foreign exchange earnings.
Despite the risks, the IMF noted that the global economy has so far proved more resilient than initially feared, helped by easing financial conditions, strong corporate earnings and continued investment linked to artificial intelligence and digital technologies.
