The year closed with an economy still in recovery, shaped by easing interest rates, improving business activity, and renewed strength in financial markets, even as climate shocks added new pressure.
The figures, analysis, and charts in this report are drawn from research published by Asia Securities and CT Smith. Asia Securities provides investment banking, research, equity brokerage, and wealth management services. CT Smith is a financial services firm with around 30 years of experience, offering investment banking, stockbroking, and asset management. Both firms are based in Sri Lanka.
Government Cuts Debt by a Trillion in 2025
Government securities (G-secs), which are loans the government takes by borrowing from investors, were repaid in small amounts each month. Overall, the government retired about Rs1.1 trillion of debt using its own funds, meaning it did not borrow to finance these repayments, according to Asia Securities.
Ditwah’s Effect on Trade
Asia Securities’ analysis shows a recurring post-cyclone pattern in trade. After Cyclones Roanu (2016) and Mora (2017), imports rose sharply during reconstruction, while exports weakened as farms and factories were damaged, widening the trade deficit around mid-year. Cyclone Ditwah is expected to follow a similar path, with higher import demand for rebuilding and export setbacks from losses in tea, other agriculture, and manufacturing.
“>$6 BN Reserves as of November 2025”
Declining Interest Rates
CT Smith’s data shows interest rates declined from the start of 2024 to December 2025. The Average Weighted Prime Lending Rate (AWPLR), which banks charge their best customers, the Average Weighted Deposit Rate (AWDR), which reflects returns to savers, and the 12-month Treasury bill yield, the interest rate the government pays to borrow money for one year, all fell steadily through 2024 and 2025, lowering borrowing costs while reducing deposit returns.
The Scale of Pending Debt Obligations
Excluding debt-related payments, salaries and wages account for the largest share of government spending at 33%, according to CT Smith’s analysis of the 2026 Budget. Capital expenditure follows at 31%, while other recurrent costs make up 25%, and pensions a further 11%, taking total non-debt spending to Rs4.4 billion. Despite this, debt remains a major burden, with Rs4.5 billion allocated for servicing, including Rs2.6 billion in interest payments and Rs1.9 billion in principal repayments.
Where Profits Were Concentrated
CT Smith’s data shows Commercial Bank leading profits in the latest reported quarter, followed by Hatton National Bank. Earnings are concentrated in finance, with four of the top five coming from banking and lending groups. Beyond the leaders, companies such as Nations Trust, Dialog Axiata, Carson Cumberbatch, and Bukit Darah also reported solid profits, indicating broader earnings strength across sectors.
Highest Profitable Counters in 3Q2025/2Q26 (Rs.bn)
Recovery in Private Sector Credit
The private sector credit-to-GDP ratio measures bank lending to businesses and households relative to the size of the economy. Asia Securities reports that lending is gradually shifting away from the government towards the private sector as public borrowing declines. Since 2023, private sector credit has risen steadily with the recovery of key industries and improving loan demand. This trend is expected to continue in 2026, supported by borrowing for post–Cyclone Ditwah rebuilding, though the disaster may raise short-term uncertainty and borrowing costs.
Earnings Stabilise After Quarterly Rebound
Overall market profits fell year-on-year from about Rs225 billion to Rs175 billion, according to CT Smith, but improved quarter-on-quarter, towards the end of 2025, rising around 13% from roughly Rs160 billion. Banks were the largest contributor, accounting for about 30% of earnings, followed by diversified financial firms (22%) and food, beverage, and tobacco (18%).
Quarterly Market Earnings (Rs.bn) and QoQ Growth (%)
Stock Market Shows Strong Performance in the Region
CT Smith reports that by the end of 2025, the stock market ranked among the stronger performers in the region. In October, the All Share Index (ASI) posted solid gains on both a monthly and quarterly basis, standing out against regional markets where performance was more mixed and, in some cases, weaker.
