Signs of economic recovery are emerging in Sri Lanka, inflation remains low, revenue collection is improving and reserves continue to accumulate, according to the International Monetary Board (IMF), whose executive board recently concluded Article IV Consultation for 2024 and the second review under the 48-month Extended Fund Facility arrangement for the country.

Inflation was 0.9 per cent in May this year and gross international reserves increased to $5.5 billion by end of April. The primary balance improved to a surplus with tax revenue increasing to 9.8 per cent of gross domestic product (GDP) in 2023, the IMF said in a release.

Despite improvements in non-performing loans, pockets of vulnerabilities remain in the banking sector, it noted.

The recovery remains gradual, and the medium-term growth potential hinges on appropriate policy settings, it said.

Growth is projected to recover moderately in fiscal 2024-25 given constrained bank credit and fiscal consolidation, while facing uncertainties around the debt restructuring and policy direction following the elections.

Inflation is expected to temporarily increase due to one-off factors. The current account is expected to remain positive in 2024, driven by improved tourist arrivals and remittances.

Domestic risks could arise from waning reform momentum, especially on revenue mobilisation. Slow progress in debt restructuring could widen financing gaps, the IMF noted.

The EFF-supported programme aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, rebuild external buffers, safeguard financial sector stability and strengthen governance and growth potential.

Fibre2Fashion News Desk (DS)

Signs of economic recovery emerge in Sri Lanka, inflation low: IMF

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