  
Sri Lanka’s inflation is projected to remain elevated near eight percent through the remainder of the year and into early 2027 before steadily easing toward official targets, according to Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe. Delivering a comprehensive assessment of the nation’s economic landscape, the Governor highlighted that while cost pressures persist, the country is experiencing a remarkable turnaround across foreign reserves, remittances, and state revenue collection following its severe economic crisis.
Inflation is anticipated to stay around 8 percent or slightly above through the end of the year and the first quarter of 2027. Dr. Weerasinghe explained that inflationary pressures stemming from energy and transport price shocks take time to subside. However, assuming petroleum prices remain stable and factoring in base effects, inflation is expected to return to the Central Bank’s 5 percent target beginning in the second quarter of 2027 and continuing into the second half of that year.
The external sector has sustained crucial support through tourism and overseas worker remittances. Although tourism encountered setbacks around April due to Middle Eastern air traffic disruptions, the sector has since rebounded to match last year’s performance. Remittances continue to exceed expectations following more than 20 percent growth last year, with projections indicating inflows will reach nearly 9 billion dollars this year—amounting to roughly 9 percent of gross domestic product and underpinning a favorable current account balance.
Key Developments
- Inflation Path: Forecast to hold around or slightly above 8 percent through the first quarter of 2027 before returning to the 5 percent target by the second quarter of 2027.
- Surging Foreign Reserves: Official reserves have climbed from a 2022 low of 1.9 billion dollars to over 7 billion dollars, with expectations to near 8 billion dollars by year-end supported by the International Monetary Fund, the Asian Development Bank, the World Bank, and market operations, despite an unsuccessful government dollar bond issuance.
- Remittance Inflows: Expected to approach 9 billion dollars this year, contributing approximately 9 percent of GDP.
- Fiscal Turnaround: Government revenue as a share of GDP has effectively doubled from approximately 8 percent during 2020–2022 to over 16 percent, outperforming targets set by the International Monetary Fund.
Emphasizing the need to guard against global shocks, Dr. Weerasinghe stressed that Sri Lanka must maintain and strengthen its external buffers amid ongoing international uncertainties. He noted that the doubling of state revenue to more than 16 percent of GDP represents one of the strongest fiscal turnarounds in the country’s history, driven by disciplined expenditure management and robust revenue mobilization.