According to the latest monetary policy report released by the Central Bank, Sri Lanka's annual economic growth is anticipated to remain positive in 2024, with a gradual progression towards its potential over the medium term. The report, published on Thursday (Feb. 15), offers forward-looking insights into the economy, focusing on inflation and economic growth trajectories.
The document also aims to assess risks to the inflation and economic growth projections, taking into account both domestic and global developments. Sri Lanka achieved a significant milestone in 2023 by reducing its inflation rate to single-digit levels and restoring price stability after grappling with historically high inflation in 2022. The Central Bank projects inflation to stabilize around the targeted level of 5% (year-on-year) over the medium term.
Despite potential short-term deviations from the target, particularly due to recent amendments to the Value-Added Tax (VAT) and supply-side disruptions, the Central Bank believes any impact will be transient. In early 2024, the government increased VAT from 15% to 18% to meet revenue targets as part of the IMF program.
The report also highlights signs of economic recovery, partly attributed to the International Monetary Fund's (IMF) bailout package of USD 2.9 billion. This assistance came after Sri Lanka faced its worst financial crisis since gaining independence in 1948, culminating in the nation's first-ever default on its foreign debt in April 2022.
