Sri Lankan economy is on the revival track following a $2.9 billion bailout loan from the International Monetary Fund. The financial crisis of 2022 which brought inflation to soar at nearly 70 percent that year is faltering now. Consumer prices fell to 2.1% in November, the highest deflation recorded since 1961. This was driven by the previous downward revisions to the electricity tariff and domestic fuel prices and the softening of the volatile food prices, amid subdued demand.

“Headline inflation will remain negative in the next few months, deeper than previously projected, mainly due to larger downward adjustments in energy prices and reduction in volatile food prices,” the Sri Lankan Central Bank said in a statement.

The Sri Lankan Rupee's highest appreciation since April, to 1.9% in the fiscal year 2024, shows a positive momentum in the external sector. The foreign exchange reserves increased to $6.5 billion at the end of October 2024, recording an increase of $ 2 billion from December 2023.

The merchandise trade deficit narrowed to $544 million in October 2024 from $683 million in October 2023, a Y-o-Y narrowing of $139 million, approximately 25% narrowing of the trade deficit.

The Island nation received assistance from the International Monetary Fund, to restore its macroeconomic stability, debt sustainability and safeguard financial stability and set up austerity measures to propel the country towards an upward trajectory. The recently elected President Aruna Kumar Dissanayake introduced tax increases and budgetary cuts to maintain long-term fiscal stability. As the government works to improve its monetary policy, the headline inflation is expected to remain negative in the coming months. However, inflation is likely to turn positive and reach the targeted 5% over the medium term aided by appropriate policy measures.