Saturday Sep 27, 2025
Saturday Sep 27, 2025
Friday, 19 September 2025 00:24 - - {{hitsCtrl.values.hits}}
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| Asia Frontier Capital Fund Manager Ruchir Desai |
Sri Lanka is poised for a period of sustained economic growth after years of crisis, according to Asia Frontier Capital (AFC) Fund Manager Ruchir Desai, who argues that political stability, reforms and attractive valuations make the country a compelling opportunity for investors.
“With an outlook for stable growth, a universe of exceptionally well-run companies with good corporate governance and valuations that are still below pre-crisis levels, Sri Lanka remains a top country pick for our AFC Asia Frontier Fund,” he said. Sri Lanka is the second largest country weight in the AFC Asia Frontier Fund at 12.9%.
Writing in ‘International Banker’ on 16 September under the title ‘Sri Lanka: From stability to growth’, Desai noted that GDP growth reached 5% in 2024 and 4.8% in the first quarter of 2025, well ahead of expectations (GDP growth inched up to 4.9% in 2Q).
He said growth is being driven by domestic consumption, business and infrastructure spending, as well as a strong rebound in tourism.
“Although Sri Lanka’s economic momentum has been positive over the past 18 months, it is essential to put this in perspective, given the fact that the country faced numerous challenges between 2018 and 2022. It is only now that Sri Lanka, after facing such hardship, is realising its potential,” he wrote.
Desai said he visited Colombo in November 2022 when valuations on the Colombo All-Share Index had collapsed to a price-to-earnings ratio of just 4.0 times, levels not seen in decades. He described it as the bottom of a downward economic spiral but also “the beginning of incremental improvements”.
He credited the Central Bank of Sri Lanka with stabilising the currency and curbing inflation through steep rate hikes and a managed devaluation in 2022.
The IMF program approved in March 2023 reinforced confidence, while falling inflation later in the year enabled the Central Bank to ease rates, generating positive momentum in 2024.
Worker remittances also rebounded as the rupee steadied, while tourism recovered strongly from late 2023, with arrivals in 2025 expected to exceed pre-pandemic levels at about 2.5 million visitors.
Desai said these shifts have re-rated the Colombo Stock Exchange, which has gained nearly 200% in US dollar terms since early 2023, and he argued that valuations remain attractive compared with pre-crisis levels.
He noted that the real inflection point for investors was the 2024 elections, when Anura Kumara Disanayake and the National People’s Power coalition won decisive victories in both presidential and parliamentary polls.
“Sri Lanka has made significant progress in returning to growth mode since the economic crisis of 2022; however, the real inflection point for the economy and investors was the positive outcome of the presidential and parliamentary elections,” he wrote.
“This faith has been reflected in the CSE All-Share Index, which gained a stellar 34.5% in the fourth quarter of 2024. So far in 2025, the index has returned nearly 19% as confidence in Sri Lanka’s outlook gathers strength.”
Looking ahead, Desai highlighted opportunities in tourism and logistics.
“As the country capitalises on its ongoing economic momentum, Sri Lanka’s policymakers should continue on the reform path, which can support a more sustainable long-term growth rate while also tapping into ‘low-hanging fruit’ by improving both tourism and logistics infrastructures,” he wrote.
“The Port of Colombo, with its deep-sea terminals and strategic geographic location, could play a more significant role in trade and logistics for South Asia. Policies aimed at further strengthening Sri Lanka’s trade and logistics industry will support long-term economic growth.”
He also pointed to Sri Lanka’s ability to benefit from India’s expansion.
“Furthermore, Sri Lanka’s proximity to India can benefit the country by capturing the growth opportunities offered by its tourism and logistics industries through leveraging India’s long-term economic growth.
“Many Southeast Asian economies leveraged China’s economic growth via tourism and trade in the 2000s. Sri Lanka is currently in a similar position, and the country should capitalise on the favourable opportunities provided by India’s prosperity.”
Desai acknowledged global risks but argued that they are less relevant to Sri Lanka’s outlook.
“Concerns persist in many countries due to the uncertain nature of US trade policies. However, it is important to note that the factors driving Sri Lanka’s recovery and growth are more domestic than US export-related. Sri Lanka’s exposure to exports to the United States as a percentage of its GDP is relatively small at 3%, much lower than that of many Southeast Asian economies.”
He added that the country has already shown resilience. “It may not be easy to gauge how external events will unfold; however, to its credit, Sri Lanka has overcome numerous challenges in recent years, putting its economy on a stronger footing.
“In my view, the stage has now been set for Sri Lanka to achieve a period of stable growth; policymakers should follow through on executing policies and capturing the promising opportunities the country and the region offer, which will be positive not only for companies and investors but also for the wider country and its kind and hospitable people.”
“At the same time, I hope that policymaking is not hindered significantly by complacency originating from the ongoing optimistic sentiment in the country,” he cautioned.
