Sri Lanka Economy: Inflation & Positive Trajectory
Colombo, Apr 21 (PTI) Sri Lanka's economy has moved past deflation, with the central bank's data showing a steady inflationary climb since 2025, the island nation's apex bank report has said.The Central Bank of Sri Lanka (CBSL) said that the economy continued to build on the recovery achieved in previous years in the Annual Economic Review for 2025, released on Monday."...Underpinned by sustained macroeconomic stabilisation and the continued implementation of policy and structural reforms," it added.The inflation turned positive from August 2025, following a period of deflation, the report said.This growth was supported by factors such as historically high levels of workers' remittances and improved services exports, despite a widening trade deficit."These foreign exchange inflows enabled the continued build-up of reserves amid external debt service payments," it added.Even the Sri Lankan Rupee (LKR) recorded a modest depreciation under the flexible exchange rate regime.
The Central Bank made efforts to build foreign reserves through foreign exchange purchases, thereby strengthening buffers and enhancing external sector resilience. In 2025, it also rolled out a series of regulatory and developmental updates designed to modernise the financial system and keep it stable amid rapid economic and technological shifts.Anti-money laundering, countering the financing of terrorism, and countering proliferation financing initiatives saw progress supported by legislative reforms.The overall growth projection for the island nation's economy for 2025 also stood at 5 per cent, according to the report.The Central Bank, however, warns that persistently elevated global uncertainties, including geopolitical tensions, trade disruptions, and climate-related risks, pose continued challenges to the economic outlook.This remains contingent on the duration and magnitude of the ongoing war in the Middle East and its potential spillovers to global energy markets, trade flows, and financial conditions, it said.Reflecting the impact of the West Asia conflict, inflation, which has remained low thus far, is expected to return to target sooner than previously anticipated, the Bank added."In an environment of heightened global uncertainty and unabated consequences of climate change, sustaining policy buffers, accelerating structural reforms and remaining steadfast in implementation will be vital to strengthening resilience and safeguarding macroeconomic and financial stability."Starting February 28, the US and Israel launched a massive joint attack on Iran and with Iran's retaliation, it extended to the entire Gulf region till ceasefire on April 8 for peace talks.
