By a special correspondent
Sri Lanka’s export sector posted cautious growth in early 2026, but rising geopolitical instability in the Gulf region now threatens to undermine its projected recovery trajectory.
First-quarter earnings of over $4.3 billion reflect incremental progress, yet the performance was uneven, with strong early gains offset by a significant downturn in March.
The Export Development Board attributed much of the disruption to escalating tensions linked to conflict dynamics in the Middle East, which directly affected global shipping routes and insurance costs.
The closure risks and congestion around the Strait of Hormuz forced shipping lines to reroute vessels, increasing transit times and raising operational expenses for Sri Lankan exporters.
This disruption hit both merchandise and services exports, highlighting the country’s exposure not only to physical trade flows but also to globally integrated logistics and digital service networks.
While sectors such as ICT/BPM grew over 31% and financial services expanded by more than 38%, traditional export categories showed mixed or declining performance.
Apparel and textiles, still Sri Lanka’s largest export segment, fell over 8% due to weaker demand in the US and EU markets, both key destinations accounting for over half of exports.
Tea exports declined 5.22%, rubber slipped marginally, and spices dropped more sharply, reflecting both global price pressures and shifting demand patterns in commodity markets.
In contrast, coconut-based exports surged over 20%, while electrical and electronic components grew more than 44%, signaling gradual diversification toward value-added industries.
Seafood also recorded strong growth above 30%, driven by rising demand for frozen and fresh fish, suggesting selective resilience within agricultural exports.
However, export concentration risks remain high, with the United States accounting for about 22% of total merchandise exports and showing an overall decline of more than 8% in March.
India continued its upward trajectory, overtaking the UK as Sri Lanka’s second-largest market, while European demand remained mixed across key destinations such as Germany and the Netherlands.
The UAE recorded a dramatic decline of over 11% in the quarter, with March alone showing a steep contraction, reflecting the immediate impact of Gulf-region instability on trade flows.
Looking ahead, analysts warn that unless maritime security stabilizes and freight volatility eases, Sri Lanka’s ambitious $20 billion export target for 2026 could face sustained pressure.
Ultimately, the country’s export future will depend on how effectively it diversifies markets, strengthens logistics resilience, and insulates its economy from escalating geopolitical disruptions in key shipping corridors.