Quarterly Economic Review March 2026
Published: Thursday June 11th, 2026
First Quarter of 2026. The Review provides an examination of the domestic economic performance, as well as sectoral developments, principally during the period January to March.
During the first quarter of 2026, preliminary indications are that the domestic economy maintained its growth momentum on pace with the same quarter of the previous year. However, economic indicators continued trending closer to their medium to long-term potential, following the accelerated recovery from the pandemic. Tourism sector sustained heathy output gains, supported by robust expansion in the sea segment, combined with more strengthened indicators for the high value-added air component, which still faced capacity constraints. Further, various small to medium-scale foreign investment projects, undergirded activity in the construction sector. In price developments, indications are that inflationary pressures increased, reflective of the pass-through effects of higher global oil prices on imported oil and other goods.
Provisional estimates for the third quarter of FY2025/26 indicated that the Government’s budgetary surplus decreased, relative to the comparative quarter of FY2024/25. Contributing to this outturn was a rise in total expenditure, which outstripped growth in aggregate revenue. Budgetary financing was sourced largely from the domestic market and consisted of a mix of long and short-term debt instruments.
In monetary developments, bank liquidity expanded during the review quarter, as the buildup in the deposit base outpaced the rise in domestic credit. In addition, the accumulation in the financial system’s net foreign assets widened, compared to a year earlier, bolstered by robust foreign currency inflows from real sector activities. Further, banks’ credit quality indicators improved over the review period, reflective of the ongoing strengthening in economic activity. However, banks’ profitability indicators abated over the fourth quarter of 2025—the latest period for which data is available—on account of a rise in operating costs and increased provisions for bad debt. Meanwhile, the weighted average interest rate spread narrowed during the first quarter, as the decline in the weighted average loan rate outpaced the decrease in the mean deposit rate.
On the external side, the estimated current account deficit widened during the review quarter, explained by a rise in the merchandise trade deficit, along with an increase in the primary income account deficit. These overshadowed the expansion in the services account surplus and the uptick in the secondary income account receipts. In contrast, the financial account inflows, excluding reserve assets, expanded, owing primarily to a sharp reduction in portfolio investment outflows and a rise in direct investments inflows. Meanwhile, the estimated capital account transfers reported nil transactions during the first quarter, similar to the preceding year.
The report also features a review of financial services activity in 2025 and its contribution to the overall economy. The results from the 2025 survey underscore moderate expenditure-driven growth in the financial sector’s contribution to the economy. In particular, evolving international compliance standards and heightened supervisory requirements have contributed to further gradual consolidation within international banking and trust activities. However, at the domestic level, financial intermediation continued to strengthen, specifically among banks, credit unions and insurance companies, resulting in balance sheet growth and sustained expenditure within the economy. Meanwhile, overall employment growth across the sector remained constrained by institutions’ focus on operational efficiency and digital transformation. In addition, the international sector remained impacted by restructuring efforts and regulatory adjustments.
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