The monetary policy report released by the Central Bank of Sri Lanka on Thursday (Feb. 15) revealed that the country's annual economic growth is poised to maintain positivity throughout 2024, with a gradual trajectory towards reaching its full potential over the medium term.

This document offers forward-looking perspectives on various economic facets, particularly emphasizing inflation and economic expansion. Additionally, it endeavors to assess potential risks to these projections, taking into account both domestic and global developments.

One significant achievement highlighted in the report is Sri Lanka's successful reduction of inflation to single-digit levels in 2023, effectively reinstating price stability after grappling with historically high inflation in 2022. The Central Bank noted that inflation is anticipated to stabilize around the targeted rate of 5% (year-on-year) over the medium term.

Despite potential short-term deviations from the inflation target, particularly attributed to recent adjustments in the Value-Added Tax (VAT) and disruptions in the supply chain, the Central Bank expressed confidence that any resulting impact is expected to be transient.

At the onset of 2024, the government implemented an increase in VAT from 15% to 18% in alignment with revenue targets outlined under the International Monetary Fund (IMF) program.

The report underscores Sri Lanka's gradual economic recovery, which can be attributed in part to the IMF's bailout package amounting to USD 2.9 billion. This support was extended to the nation as it navigated through its most severe financial crisis since gaining independence in 1948. Notably, Sri Lanka experienced its inaugural default on foreign debt in April 2022.