A 5% growth headline that hides Sri Lanka's incomplete recovery

Sri Lanka's economy grew by nearly 5% last year, according to the Central Bank's newly released "Economic and Social Statistics of Sri Lanka" report. This marks the second consecutive year of strong growth, following the deep economic crisis of 2022.

However, the same figures show that the recovery is not yet complete. Despite two years of growth, the size of the economy in real terms is still slightly smaller than it was in 2019, before the pandemic, and smaller than in 2018.

With the population larger now than it was then, the average output per person remains below pre-crisis levels.

The Central Bank's quarterly data does show that the recovery is becoming steadier. Growth stayed between 4% and 5.5% every quarter for the past two years, and the latest quarter, the final three months of last year, saw growth of 4.8%.

Other figures point to how deep the adjustment was. Investment remains far below pre-crisis levels, even as Sri Lanka moved from borrowing heavily abroad to saving more than it invests.

The pace of price increases across the economy, measured through the GDP deflator, peaked above 47% in 2022, and slowed to under 4%.

The data also shows that government tax revenue nearly doubled as a share of the economy in just three years.

Meanwhile, the trade deficit, which narrowed sharply during the crisis, is widening again as imports recover.

Central Bank officials noted that the most recent figures remained provisional, and may be revised in next year's report.