Sri Lanka is regaining the industrial strength that weakened during and after the 2022 economic crisis, an index tracking industrial activity shows.

The Index of Industrial Production (IIP) recorded 95.2 points for January 2025, up 6.1 percent from the same month a year earlier, indicating a recovery in related activities.

Industrial sector activity has slowed since 2022 due to a foreign exchange shortage, which led to the tightening of import controls.

Economic shock therapy came in the form of an exponential increase in borrowing and tax rates, curbs on business and consumer spending, and a contraction in the industrial sector and the overall economy.

The current recovery is taking place as foreign exchange availability has improved, import controls have been lifted, and business and consumer spending are picking up as borrowing costs and inflation have fallen significantly.

Industrial production in January was largely driven by growth in other non-metallic mineral products, coke and refined petroleum products, and chemicals and chemical products, which grew by 32.3 percent, 22.5 percent, and 12.7 percent, respectively.

Meanwhile, key industries such as food manufacturing and garment manufacturing also showed modest growth of 1.4 percent and 1.6 percent, respectively. However, beverage production fell by 9.5 percent year-on-year. Sri Lanka has a relatively shallow industrial sector, making its economy highly vulnerable to global shocks and disruptions, as seen during the pandemic. Reflecting a weak industrial base that relies heavily on a few large-scale industries, such as apparel, the country imports twice as many goods as it exports.

Food production is also not large or resilient, as demonstrated at the height of the crisis, when limited imports raised fears of food shortages.

Sri Lanka must broaden and deepen its manufacturing activities, connecting to global and regional supply chains for a stronger economy and better-paying jobs.