For a small island nation off the coast of India, Sri Lanka has become an apparel manufacturing success story. Garment production has been a consistent economic driver for the last 20 years, with exports reaching a post-pandemic high of $5bn in 2025, up more than 5% from $4.76bn in 2024. But a series of successive blows have rattled Sri Lanka’s export outlook for 2026, threatening progress the apparel sector has made—and must continue to make—in order to maintain its position in a competitive market. Despite challenges, experts are confident in the country’s resilience and crisis preparedness, believing Sri Lanka has the sustainability, regulatory and geopolitical credentials to enable long-term growth as a leading garment producer.
Successive Supply Chain Shocks
“I think 2026 is going to be very different from what we planned,” says Yohan Lawrence, Secretary General for the Joint Apparel Association Forum Sri Lanka (JAAF), an organization made up of five different textile export associations. In February, JAAF reported that apparel exports (typically high-value goods like technicalwear, activewear and underwear) had fallen by almost 12% compared to the previous year.
While the issue isn’t Sri Lanka-specific—India and Bangladesh experienced similar declines—it’s another setback for the nation as it slowly recovers from a number of shocks in the last six years, the most recent being last November’s Cyclone Ditwah, considered the worst climate event since the 2004 Boxing Day tsunami. The financial crisis of 2022, which saw power cuts and fuel shortages, and the Covid-19 pandemic, have made the apparel industry and broader society more prepared for increasingly common disruptions to business-as-usual.
Fluctuating tariffs imposed by the US have been an ongoing disruption since 2025, dampening demand from American brands that make up around 40% of Sri Lanka’s apparel exports. “Sri Lanka had initially a 44% tariff, then that came down to 20%, and then the Supreme Court ruled that those tariffs are illegal, so we’re now down to 10%,” says Lawrence. The 10% tariff is also currently applied to other key apparel regions, impacting demand across the board but not tipping the scales in the favor of any one country. “Our challenge has always been to have parity,” says Lawrence. “What works against us is if you have a higher tariff than your competitors.”
In response to the US and Israeli war on Iran, Sri Lanka was quick to implement fuel rationing and a four day working week for public institutions in mid-March, but fuel shortages are already impacting apparel production and exports. “The increases in fuel costs, together with the related increase in energy costs has a massive impact on the industry,” says Lawrence. The longer the war continues, JAAF expects raw material costs to become a concern, but for now the key issue is freight costs. “Overall, we estimate that the fuel increases will cost the industry in the region of USD 2 million per month across the supply chain. Unfortunately, we are not able to pass these increased costs onto our customers as prices are agreed and locked in on a seasonal basis.”
Maintaining and Growing a Competitive Edge
Sri Lanka might punch above its weight in the apparel sector, but it’s still a comparatively small nation with less financial power than its peers. There is concern that prolonged crises could quash Sri Lanka’s competitiveness in regards to technology and innovation adoption. “Achieving global benchmarks in energy and water efficiency requires continuous investment in modern technologies,” says Dr. Leonie Vaas, General Manager of Group Sustainability at Hirdaramani Apparel. “In Sri Lanka, the apparel sector faces structural challenges, including aging infrastructure and limited access to capital due to ongoing economic pressures. This creates a gap when compared to regional competitors such as Vietnam and China, where investments in newer technologies are more feasible.”
Sri Lanka already has strong technical knowledge, but what is needed is greater investment in new infrastructure to remain competitive. Lawrence says that this investment is unlikely to come from international financiers. “The reality is that any upgrading will need to be at the cost of the manufacturer. With increasing tightness on working capital, whether it’s from money tied up in VAT refunds, higher operating costs or cash flow tied up with fuel providers, the question remains as to whether companies could afford to take on more borrowing to fund these improvements.”
While Sri Lanka’s apparel manufacturing sector is dominated by a few major groups—Brandix, Hirdaramani and MAS Holdings— smaller players are at greater risk of falling behind. To bolster their capacity and future proof the sector, Sri Lanka is part of a five-year initiative called the Global Program for Textile and Clothing (GTEX2). The program is supporting 25 SME manufacturers and other stakeholders through training and mentorship on innovation, environmental and social compliance, export regulations and digital traceability tools.
Sri Lanka maintains a strong reputation for sustainability and ethical manufacturing standards. The country’s own regulations have prepared its manufacturers for the laws that their European, British, and American brand partners are now navigating. “Compared to other countries in the region, Sri Lanka has a strong regulatory framework under its environmental legislation,” says Vaas. “The requirement for Environmental Protection Licenses ensures that manufacturers comply with stringent standards on water, air and waste. This regulatory foundation positions Sri Lankan apparel manufacturers well to align with evolving customer sustainability and ESG requirements.” This emphasis on environmental requirements is a big part of Sri Lanka’s unique selling proposition, says Lawrence. “We’re not the cheapest place to make. We don’t have the biggest factories in the world, so we can’t manage on scale,” he says. “What we can compete on is product quality, on delivery and reliability.”
Shifting Trade Alliances and Growth Markets
In an increasingly polarised world, Sri Lanka has advantages that others in the region don’t, says Ajai Vir Singh, the founder of Colombo Fashion Week. “I think Sri Lanka continues to enjoy a very strategic position in South Asia,” he says. “Probably it is the only country which is [politically] neutral and remains neutral. That, I think, in today’s day and age, is an advantage.”
This allows Sri Lanka to explore new opportunities with a broader range of trade partners to diversify its markets away from the U.S. In January, the United Kingdom revised its Developing Countries Trading Scheme (BCTS) to allow tariff-free access to garment imports from Sri Lanka. “The change in the UK BCTS scheme was a huge win that strengthened our hand in the UK,” says Lawrence. “Marks and Spencer, Tesco, and others are already buying out of Sri Lanka, but our challenge is to be able to reach some of the other brands who maybe don’t. The UK is about 15% of our industry at the moment, so I think it’s something that we could look to growing.”
Similarly, Lawrence says that JAAF is looking at Japan, Korea and Australia as potential new markets for Sri Lankan products, where higher duties than other countries currently makes Sri Lanka less attractive as an import partner “Right now, we are disadvantaged in those markets by the trade agreements that exist with our competitors, so we’re looking to see if we can get some leverage there.” Could these markets, plus stronger ties to the UK, eventually bridge the gap left by the US? “That’s not a million, but a billion dollar question,” says Singh. “[Considering] the amount of time, effort and energy that has been invested in developing that market for Sri Lanka, I know that it will be difficult to shift or pivot away from there immediately. Personally, I feel it’s a wake up call, and I know that people are looking for options.”
All experts agree that Sri Lanka is uniquely resilient and responsive to hardships. In the short term, it will weather the most pressing crisis of fuel shortages with the backing of a government that prioritizes its most valuable exporter. “The government recognizes how important the sector is in the economy. We are the single biggest merchandise export sector, and the largest employer, so we play a pivotal role in the economy,” says Lawrence. “Fuel is limited, and everybody has a very good reason why they need more fuel, but it’s recognized that the [apparel] sector needs to be supported in this time — and that has been a great help.”
