In its most recent monetary policy report released on Thursday, February 15, the Central Bank of Sri Lanka forecasts a continued positive trajectory for the country’s annual economic growth throughout 2024, with a gradual approach towards reaching its full potential in the medium term. The report not only sheds light on future economic trends but also offers insights into inflation dynamics.
The document aims to provide a comprehensive evaluation of potential risks to inflation and economic growth projections, taking into account both current and anticipated developments on the domestic and global fronts.
The Central Bank highlighted the nation’s successful reduction of inflation to single-digit levels in 2023, restoring price stability after addressing the historically high inflation experienced in 2022. The report projects inflation to stabilize around the targeted level of 5% (year-on-year) over the medium term. Acknowledging the possibility of short-term deviations from the target, particularly due to recent amendments to the Value-Added Tax (VAT) and supply-side disruptions, the Central Bank assures that any impact is expected to be transient.
At the beginning of 2024, the government implemented a VAT increase from 15% to 18% as part of its efforts to meet revenue targets under the International Monetary Fund (IMF) program.
Sri Lanka’s economic recovery is underway, propelled by the International Monetary Fund’s bailout package of USD 2.9 billion. This lifeline follows the country’s grappling with its most severe financial crisis since gaining independence in 1948, marked by its unprecedented default on foreign debt in April 2022.
