Sri Lanka’s ailing economy grew at a slower-than-expected 4.8 per cent last year despite lower oil prices as a slowdown in European markets hit exports, the country's Central Bank said on Tuesday.

Meanwhile, Prime Minister Ranil Wickremesinghe said his government had inherited a ‘very bad situation’ when it came to power early last year but that things were improving.

“We are turning the economy around,” he told the media yesterday. “We do not have a balance of payment crisis any more. We may have had it before, but not now.”

The news of a slowdown in growth from 4.9 per cent in 2014 came as Sri Lanka negotiates with the International Monetary Fund for a bailout to help fund substantial debt repayments.

Sri Lanka is expected to reach a staff level agreement with the International Monetary Fund (IMF) for a loan as early as this week, Central Bank Governor Arjuna Mahendran told reporters Tuesday afternoon.

The bank said a slowing down of net foreign exchange inflows, including worker remittances, and capital outflows had generated a balance of payments deficit. It came despite the welcome effect of a sharp drop in oil prices — Sri Lanka is dependent on imported crude.

(With inputs from AFP and Reuters)