Sri Lanka’s construction sector enters expansion phase with Rs. 2 trillion pipeline
Daily FT: Sri Lanka’s construction sector is moving out of a post-crisis recovery into an expansion phase, supported by reconstruction demand and a multi-year public investment pipeline, according to CT Smith Securities.
In a report titled “Construction Sector: Recovery Broadens,” the firm said the sector, which historically moves at around 2.8 times the pace of GDP, is positioned to benefit disproportionately from the ongoing macroeconomic recovery.
“Following the 2022–2023 contraction, the sector is shifting from survival to growth, with downside risks easing while upside potential remains largely untapped,” CT Smith Securities said.
The sector’s contribution to GDP stood at Rs. 1.9 trillion in 2025 at current prices, with activity expected to strengthen as demand drivers build across both public and private segments.
A key near-term driver is reconstruction following Cyclone Ditwah in late 2025. The report said damage is estimated at around 4% of GDP, with Government estimates placing total rebuilding costs at approximately Rs. 878 billion as at January 2026.
The firm noted that the scale of damage exceeds that of the 2016–2017 floods, which supported construction activity at around 12% of GDP during 2016–2018.
“The rollout of relief programme and insurance settlements are expected to generate a meaningful near-term boost to construction sector demand,” the report said.
Public investment is expected to remain the main source of demand over the medium term. The Government’s 2026–2028 public investment program allocates around 70% of capital spending to construction-related sectors, amounting to approximately Rs. 2 trillion over the period.
Within this allocation, highways account for 48%, irrigation 17.5%, and housing 9.3%.
CT Smith Securities said this provides visibility for contractors and construction-linked firms, particularly those exposed to infrastructure projects.
Private sector activity is also showing early signs of recovery. Outstanding credit to the construction sector increased by 15.5% year-on-year in 2025, indicating a gradual return of financing.
“Looking ahead, a gradual reallocation of credit toward production-oriented sectors in 2026–2027 is expected to broaden and deepen the private sector capex cycle,” the report said.
Additional support is expected from a recovery in condominium development, linked to rising land prices, alongside a gradual pickup in retail and private construction.
Over the longer term, projects such as Port City developments, Bandaranaike International Airport Phase 2 expansion, port infrastructure, and renewable energy investments are expected to sustain activity. The report said leading indicators point to an early growth phase, with new orders and purchasing volumes rising, while employment growth remains limited.
“Historically, this phase has delivered the strongest equity return,” CT Smith Securities said.
OSL take:
The growth and expansion recorded by Sri Lanka’s construction industry is a clear indication of the overall economic expansion of the country. The growth recorded by all key economic sectors, the rebuilding programmes following Cyclone Ditwah and the country’s overall development programme have driven the country’s construction industry. With Sri Lanka’s increasing land value and the expansion in the house and property as well as construction sectors all present lucrative business/investment opportunities. Given Sri Lanka’s target of becoming a hub in the South Asian region, the real estate development as well as construction industries present the best opportunities for foreign businesses/investors, which could also be explored through joint ventures or partnerships with local businesses already engaged in these industries.
| Article Code : | VBS/AT/20260409/Z_8 |