By: Staff Writer
June 24, Colombo (LNW): Sri Lanka has achieved financial system stability despite the unprecedented economic and sovereign debt crisis that peaked in 2022, but full economic recovery to pre-crisis 2018 levels may be at least three more years, according to the Central Bank.
Addressing the Financial Stability Conference in Colombo recently , Central Bank Governor Dr. Nandalal Weerasinghe highlighted that the country had managed to avert a total collapse of the financial system during the crisis, a rare achievement in similar global debt meltdowns.
“This success was made possible through timely policy decisions, effective regulatory measures, adequate financial buffers, and the collective effort of all financial sector stakeholders,” he noted.
The Central Bank implemented tight monetary policy, fiscal consolidation, and structural reforms to stabilise macroeconomic fundamentals. These moves helped reduce inflation from a peak of 70% in September 2022 to single digits within a year, setting the stage for a tentative economic recovery. The country exited six consecutive quarters of economic contraction by the latter half of 2023, prompting a shift to an accommodative monetary policy to support growth.
Inflation is expected to remain below the 5% target through early 2025, with stability anticipated thereafter, the Governor said. This positive outlook has helped rebuild confidence in the financial system and opened the door for renewed growth momentum.
However, the broader economy still lags behind. At a separate discussion on the “2024 Annual Economic Review” this week, Central Bank Assistant Governor Dr. Chandranath Amarasekara revealed that it would take until at least 2027 for the Sri Lankan economy to recover to the real GDP levels recorded in 2018.
“The real GDP in 2018 was Rs. 13.2 trillion. Due to the combined impact of the COVID-19 pandemic and the economic crisis, it declined to Rs. 12.2 trillion in 2022 and further to Rs. 11.9 trillion in 2023,” Dr. Amarasekara said. However, the economy is projected to expand by 5% in 2024, reaching a GDP of Rs. 12.5 trillion.
He emphasized that while the positive growth projection is a sign of recovery, the path to full restoration of lost economic output remains long and uncertain. Sri Lanka recorded only one year of growth—from 2019 to 2023—highlighting the severity of the setbacks it endured.
Analysts point out that while macroeconomic indicators have turned favorable, structural weaknesses, external debt restructuring, political instability, and investment inertia remain key risks to the outlook. The Central Bank’s cautious optimism underlines the need for continued reforms and sustainable fiscal policies to ensure a robust and inclusive recovery.
