GDP continued its resurgence in 2024 recording strong growth for all three published quarters. For the first nine months, GDP grew by 5.2% compared to the corresponding period of last year.

According to CBSL, GDP is projected to have grown by around 5.0% in 2024.

Sri Lanka’s economy is expected to sustain its growth momentum in FY 2025, driven by robust macroeconomic fundamentals and enhanced fiscal stability.

CBSL expects Sri Lanka economy to grow around 5% in 2025.

Interest rates remained at low levels in 2024. However, a slight uptick in interest rates was recorded due to pre-election uncertainties. After the conclusion of elections, the interest rates moved down. CBSL made two policy rate cuts totaling 75 basis points in 2024. CBSL also introduced a single policy rate: Overnight Policy Rate (OPR) discontinuing the previous policy rate corridor mechanism. The new policy rate is expected to transmit the monetary policy decisions to the markets effectively and efficiently.

The current low-interest-rate environment is expected to persist throughout much of 2025, as authorities expect interest rates to play a crucial role in stimulating economic activity through robust lending. However, a slight uptick in interest rates is anticipated towards the end of 2025, driven by increased government borrowing.

Credit to private sector experienced a significant boost supported by the low interest rate environment. In the year 2024, banks had granted credit worth Rs. 789.6 Bn. to the private sector.

Low interest rate environment is expected to further boost credit to private sector in 2025.

In 2024 Sri Lanka’s Import growth was around 12% (YoY) and exports grew by around 7% (YoY) during the same period.

The most notable improvement was the recovery of textile and garment exports which recorded a negative growth (YoY) up to January – July but moved to positive growth (YoY) from August 2024. The growth (YoY) for 2024 was 3.7%.

Tea, another major export commodity, too performed well despite many challenges faced by the industry.

Robust tourism and workers’ remittances performances ensured sound foreign inflows throughout the year.

The CBSL’s gross official reserves improved to USD 6.1 Bn. at end 2024, exceeding the year-end IMF target of USD 5.5 Bn.

Both imports and exports are expected to improve in 2025.

Resumption of vehicle imports and improved consumer demand due to revisions on personal income tax will contribute to boost import expenditure.

Geo political developments may also have an impact on exports and imports. Any shock in oil prices may increase the country’s oil import bill.

Further, anticipated protectionist trade policies of the new US regime and a struggling Europe may weigh on Sri Lanka’s exports.

The rupee appreciated against the US dollar backed by foreign inflows from multilateral organisations, and improved earnings from tourism and workers’ remittances. Further, foreign outflows were limited aided by suspension of debt repayments and vehicle imports.

Relaxation of vehicle imports, resumption of debt repayments and increased import demand due to robust economic performance are expected to apply pressure on the exchange rate in FY 2025. However, the magnitude of the depreciation will not be as severe as in 2022. Steady foreign inflows from a strong tourism sector, healthy remittance inflows and funding from multilateral organisations are expected to mitigate the downward pressure on the rupee.

Further, the sovereign rating upgrades will boost investor sentiment.

Inflation remained within the targets set by the IMF program in the early months of 2024.

However, from September 2024, Sri Lanka entered a phase of deflation mainly due to a drop in food and energy/utility prices.

Inflation is expected to remain in negative territory during the first half of 2025. However, it is anticipated to rise and align with the CBSL’s target range by the end of 2025.