By: Staff Writer

April 08, Colombo (LNW): In 2024, Sri Lanka continued its path of steady economic recovery after experiencing its worst economic crisis two years prior. Despite the difficulties, the pace of recovery was faster than that seen in most debt-ridden nations, Central Bank’s annual economic review report for 2024  revealed.

 Reforms implemented following the crisis began to yield positive outcomes. Economic activity picked up, purchasing power partially improved, and uncertainties started to fade—especially those related to the elections, which lessened as the government showed clear intent to continue reforms and maintain consistent policies.

A major turning point came with the near-finalization of external debt restructuring and the country’s removal from its restricted default credit rating, which significantly boosted confidence among investors and stakeholders.

Sri Lanka’s economic growth surpassed expectations in 2024. Inflation, which had been a concern, eased and even transitioned into deflation by September, mainly due to declining energy prices. This pushed inflation below the Central Bank’s target.

With interest rates remaining low, lending to both households and businesses increased, helping to revive domestic economic activity and regain ground lost during the pandemic and prior crisis.

On the external front, Sri Lanka’s performance was robust. The country saw stronger foreign exchange inflows and a surplus in its current account. The rupee appreciated under a flexible exchange rate policy, lowering import prices and benefiting consumers, though it slightly hurt export earnings. The fiscal sector also saw improvement, with the primary budget balance in surplus for the second year running.

The Central Bank focused on maintaining both price and financial system stability. Continuing with the Flexible Inflation Targeting framework, it kept monetary policy accommodative due to the subdued inflation outlook.

With external conditions improving, restrictions on imports and capital flows were gradually lifted. Financial sector stability was further supported by the Banking (Amendment) Act, which improved bank governance. Regulatory steps were also taken to enhance risk management and corporate governance.

The establishment of business revival units in banks aimed to help micro, small, and medium-sized enterprises (MSMEs). Efforts to boost financial literacy, inclusion, and digital banking services were also ramped up.

The crisis of 2022 had revealed deep structural flaws in Sri Lanka’s economy. The reform agenda since then has aimed at fixing these issues while maintaining fiscal discipline for long-term debt sustainability.

The government prioritized support for the vulnerable through social protection programs and began addressing corruption vulnerabilities. With inflation and interest rates low, and the financial sector stable, conditions are favorable for future growth. Positive market sentiment and political stability have further enhanced the economic outlook.

 However, global uncertainties—such as proposed U.S. tariffs—could pose risks to Sri Lanka’s external sector. This makes it vital to maintain prudent policymaking and build stronger fiscal and external reserves.

In summary, Sri Lanka’s recovery in 2024 was driven by bold reforms, prudent policies, and international support, including the IMF-EFF programme. Although substantial progress has been made, the country’s continued success depends on a strong commitment to structural reforms that ensure long-term prosperity for all its people.