By Uditha Jayasinghe
COLOMBO (Reuters) -Sri Lanka’s economy will grow by 4.5% this year, the central bank said in a monetary policy report on Friday, despite some risks to the island nation’s recovery from U.S. tariffs.
The central bank’s projection is above World Bank estimates of 3.5% growth for this year.
Underpinned by a $2.9 billion International Monetary Fund (IMF) programme, Sri Lanka’s gross domestic product grew by 5% in 2024, rebounding strongly from a severe financial crisis three years ago.
The central bank’s report did highlight some risks to the outlook.
“However, external demand conditions and evolving global economic landscape increase the level of uncertainty associated with growth prospects over the near to medium term,” it said.
Sri Lanka is continuing talks with the U.S. after it imposed 20% tariffs last month, reducing it from 44% in April.
Apparel, Sri Lanka’s second-largest foreign exchange earner, is particularly exposed — the sector exports 40% of its output to the U.S. and brought in $4.8 billion last year. It employs around 300,000 people, most of them women.
Inflation will continue to accelerate and reach the central bank’s target of 5% in mid 2026, the report added.
Sri Lanka’s consumer price index fell 0.3% in July, having tumbled from an inflation peak of 70% in September 2022, mainly due to a reduction of power tariffs and food prices.
The Central Bank of Sri Lanka (CBSL) held its benchmark interest rate unchanged at 7.75% last month after trimming it by 25 basis points in May.
(Reporting by Uditha JayasingheEditing by Shri Navaratnam)
