The World Economic Forum (WEF) has issued a stark warning about the decade ahead, forecasting extreme volatility and uncertainty in its Global Risks Report 2026. Based on insights from more than 1,300 experts worldwide, the report highlights a convergence of economic, geopolitical, and environmental threats that could significantly affect vulnerable economies such as Sri Lanka.
According to the report, Sri Lanka faces several immediate risks over the next two years. These include the possibility of an economic recession, rising unemployment, limited job creation, inflationary pressure, and an expanding debt burden across public, private, and household sectors. These challenges persist as the country continues its recovery from the 2022 debt crisis that triggered shortages, social unrest, and a prolonged economic downturn.
While Sri Lanka has exited sovereign default, the WEF cautions that the recovery remains fragile. Economic growth, which rebounded to around 5 percent in 2024, is expected to slow to approximately 3.1–3.2 percent by 2026. This slowdown reflects weakening global demand, tight fiscal conditions, and unresolved structural weaknesses in the economy.
One of the most critical risks identified in the report is “geoeconomic confrontation,” ranked as the top global threat for 2026. This refers to the increasing use of tariffs, sanctions, and trade restrictions as tools of economic policy. Sri Lanka’s heavy reliance on apparel exports makes it especially vulnerable to potential U.S. tariff increases, which could reduce export earnings, disrupt factory employment, and put additional pressure on foreign exchange inflows.
Debt sustainability remains a major concern. Public debt is projected to remain above 100 percent of GDP, sharply limiting fiscal flexibility. Rebuilding foreign exchange reserves also remains a challenge, leaving the economy exposed to external shocks.
The report also highlights shortages of skilled labour, largely driven by migration since the economic crisis. Key sectors such as healthcare, construction, and information technology continue to face workforce gaps, weakening productivity and long-term growth prospects.
Climate risks further compound these challenges. Sri Lanka is highly vulnerable to floods, landslides, and extreme weather events, which disrupt agriculture, damage infrastructure, and deepen economic stress. The WEF warns that such compound disasters can magnify existing vulnerabilities if not properly managed.
Overall, the report suggests that Sri Lanka’s economic stability over the coming decade will depend on careful policy management, economic diversification, and stronger climate resilience in an increasingly unstable global environment.
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