Sri Lanka’s annual economic growth is expected to remain positive in 2024 and gradually reach its potential over the medium term, the Central Bank said in its latest monetary policy report.

The document, published on Thursday (Feb.15), provides forward-looking insights about the economy, particularly in terms of inflation and economic growth.

It also aims to provide an assessment of risks to the projections on inflation and economic growth, considering the ongoing and expected developments on domestic and global fronts.

The country successfully reduced its inflation rate to single-digit levels in 2023 and restored price stability, after containing the historically highest inflation observed in 2022, the Central Bank said, adding that inflation is projected to stabilise around the targeted level of 5% (year-on-year) over the medium term.

Although inflation may deviate from the target in the near term, mainly due to the recent amendments to Value-Added Tax (VAT) and supply-side disruptions, the Central Bank said such an impact is likely to be short-lived.

In the outset of 2024, the government increased VAT from 15% to 18% to meet revenue targets under the IMF programme.

Sri Lanka is seeing traces of economic recovery, owing to the International Monetary Fund’s bailout package of USD 2.9 billion after it grappled with the worst financial crisis since independence in 1948. The island nation defaulted on its foreign debt for the first time in its history in April 2022.