Construction sector’s recovery and challenges going forward

The construction sector – which was the key driver of the nation’s economic growth during 2010 to 2015, particularly during the presidency of Mahinda Rajapaksa – has made a commendable recovery after having endured a series of crises – the Easter Sunday attack, COVID-19 pandemic as well as the economic catastrophe. The sector witnessed a strong revival in 2025, represented by a 12.2% growth during the 3rd quarter of 2025. The Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction), as measured by the Total Activity Index, increased to 66.2 in November 2025. According to the PMI survey, most firms had reported improved construction activity during the month, despite Ditwah-related disruptions at the end of the month. 

The construction sector experienced rapid, state-led expansion between 2010 and 2015, mainly driven by post-war infrastructure development. The sector grew significantly, often outpacing the overall national economic growth rate, with its contribution to the GDP rising from 6.7% in 2010 to 9.6% in 2014. In fact, among the South Asian region, Sri Lanka’s construction industry grew faster than any other corresponding sectors, recording expansion rates between 10% and 22%.  A low-interest rate environment, combined with urban development legislation, stimulated both public and private sector projects during the sunny days for the construction sector a decade ago.

With the change of political power in 2015, the construction activities went through an initial slowdown due to the suspension of key projects like Colombo Port City by the Sirisena-Wickremesinghe administration. However, things began to change for the better quickly and the construction industry reached record highs in late 2017, driven by a rapid increase in condominium developments. Having experienced such highs, the industry perhaps weathered its worst period from 2019 to 2023, going through a widespread decline which caused many small and medium-scale firms in the industry to wind up their businesses. With the onset of the economic crisis, the prices of construction materials skyrocketed, resulting in construction projects becoming unviable. Also, the paucity of foreign reserves made importing the required raw materials next to impossible.

The sector’s recovery over the past 2 years has been fuelled by the resumption of stalled infrastructure projects, increased Government capital expenditure (approximately 4% of GDP), and rising demand for residential and tourism-related construction. The notable reduction in construction materials from the historic highs experienced in 2022 too has provided a huge relief to the industry though few complain that suppliers have been slow to pass on full savings to customers for materials like electrical items. One of the main challenges facing the industry is the dearth of both skilled and unskilled workers.  Prior to 2019, the construction sector engaged around 600,000 workers. According to the industry sources, the sector currently employs about 350,000 workers while estimated 300,000 individuals are indirectly dependent on it. During the economic crisis, the workers in the industry left for foreign employment while few migrated permanently. As a result, the industry is now hampered by lack of both skilled and unskilled workers. The exodus of trained workers is a huge jolt to the industry because trained workers cannot be replaced easily. The reluctance of the youth to join the sector has compounded the matters further as the modern-day youth are not interested of getting employed in physically strenuous jobs. The advent of ride-hailing platforms like PickMe and Uber has provided more convenient income-earning opportunities for the youth, making it difficult to attract youngsters to vocations that are associated with demanding working conditions.

In the anticipation of the expected surge in businesses due to post-Ditwah reconstruction activities, the industry has requested the Government to grant permission to hire foreign workers from countries like India and Bangladesh. Given the ageing population and the exodus of both unskilled and trained local labour, not only the construction industry, but many sectors of the economy would have to rely on low-cost foreign workers to pursue their ventures despite the resistance of conservative sections of the country.