Thursday Jun 11, 2026
Thursday Jun 11, 2026
Wednesday, 10 June 2026 06:29 - - {{hitsCtrl.values.hits}}
Sri Lanka is better positioned to absorb the economic impact of a potential El Niño climate event than in previous years, owing to stronger fiscal and external sector buffers built up since the economic crisis, according to Frontier Research.
The research firm said the global economy is facing growing uncertainty amid the lingering effects of trade disruptions and the recent oil price shock linked to tensions in the Middle East, while the prospect of a strong El Niño event presents an additional risk to growth, inflation, and commodity markets.
Citing the latest World Meteorological Organisation forecasts, Frontier Research noted an 80% probability of El Niño conditions developing between June and August 2026, and a more than 90% likelihood of the phenomenon continuing through November.
While warning that a severe climate event could disrupt agricultural production, energy markets, and supply chains across several regions, the firm said Sri Lanka’s macroeconomic position has strengthened significantly compared with the period preceding the 2022 crisis.
“As we’ve repeated many times before, the structural change in Sri Lanka’s macroeconomic landscape has now put the economy in a better footing to deal with external shocks like this than in the deficit-driven past,” Frontier Research said. “A good example of this is how the country remains resilient currently despite the effects of arguably the biggest oil shock it has faced. While strong fiscal space and foreign exchange surpluses serve as strong buffers to shield the country from the costs of such events, it doesn’t mean short-term pains are out of the picture.”
Frontier Research said the broader South Asian region could face below-average monsoon rainfall and above-average temperatures if El Niño conditions intensify, potentially affecting agricultural output and increasing volatility in food, fertiliser, and energy markets.
The firm noted that climate-related disruptions could place upward pressure on inflation and weigh on economic growth, particularly in countries vulnerable to commodity price fluctuations and weather-related supply shocks.
However, it argued that Sri Lanka now possesses greater policy flexibility than in the past, allowing authorities to respond more effectively if disruptions materialise.
“Yes, the Government does possess better ability to amplify relief efforts and increase imports if disruptions happen, but maintaining growth and stable price levels remains key within the country’s broader macroeconomic trajectory,” Frontier Research said. “The structural changes taking place in the country’s energy mix and inflation are also factors that could support therein, helping the country to better deal with an El Niño condition.”
The research firm nevertheless cautioned that a major climate disruption would add to an already challenging global environment, where policymakers and businesses are continuing to navigate elevated geopolitical, commodity, and economic risks.
