Subscribe to our WhatsApp Channel
Four years after queues for fuel and gas defined daily life, the Central Bank Governor told the country that Sri Lanka was closing in on its pre-crisis economic position. The remark was widely reported and quickly shared on social media, where it met a blunt response from many: it does not feel that way at the market or the kitchen table. We looked at what the numbers actually show. Here are the posts that sparked the debate.
Social Media Posts
News reports highlighted the Central Bank Governor’s point that Sri Lanka had recorded economic growth for a third consecutive year since the crisis.
Related posts continued to circulate on social media.
Commenting on these reports, however, many social media users said they did not feel the economy was improving.
Explainer
The Governor Said Sri Lanka Had Grown for a Third Straight Year
The Central Bank Governor said Sri Lanka was recording economic growth for a third consecutive year since the crisis and expected growth this year to stay at a healthy level. He recalled that in 2022 the country was under severe economic pressure from an acute foreign exchange shortage, high inflation, a falling rupee, and a debt crisis, and described the speed at which stability had been rebuilt as a remarkable achievement.
He also said continued fiscal discipline and economic reform remained essential to hold on to that stability and support long-term growth.
The Economy Has Grown Steadily Since the 2022 Collapse
After the severe contraction of 2022, the economy grew by 5.0% in both 2024 and 2025, and by 5.1% in the first quarter of 2026. More details here.
Update (15 September 2026): The Department of Census and Statistics later reported that growth eased to 4.2% in the second quarter of 2026, as industry expanded while agriculture contracted. An analysis by the Daily FT noted that real GDP for the quarter was still about 1.2% below the level of the same quarter in 2019.
Prices and the cost of living, however, are driven by inflation, not by the pace of growth. Economic growth (GDP) measures how much a country produces, while inflation measures how fast the prices of goods and services are rising.
Inflation Has Been Climbing Again
The Central Bank officially reported inflation of 8.0% for August 2026 (CBSL: CCPI August 2026). That is well under control compared with the runaway inflation of 2022, but it shows a steady upward trend over recent months. Sri Lanka was in deflation until August 2025, after which inflation turned positive.
Monthly inflation in 2026 ran at 2.3% in January, 1.6% in February, 2.2% in March, 5.4% in April, 5.5% in May, 6.8% in June, 7.3% in July and 8.0% in August, the highest recent reading. That 8.0% is close to the levels seen in October and November 2021, just before the crisis, when inflation was roughly 7.6% to 9.9%.
According to the Central Bank Governor, if world oil prices stay around US$80 a barrel, inflation should gradually ease towards the 5% target from the second half of 2026 (Ada Derana: CBSL Governor, August 2026).
Food Prices Are Driving the Rise
Central Bank data show that rising food prices are the main driver of current inflation. Food inflation jumped from 6.3% in July to 8.5% in August, largely because of higher prices for essentials such as milk powder. Non-food inflation eased slightly, from 7.8% to 7.7%. Core inflation, which strips out short-term price swings, was 5.1% in August (CBSL, CCPI August 2026).
Lower Inflation Does Not Mean Lower Prices
In economic terms, a fall in inflation does not mean prices are falling; it only means they are rising more slowly. Headline CCPI inflation peaked at 69.8% in September 2022 (CBSL, September 2022), when prices shot up within a noticeably brief time. Inflation of 8.0% in 2026 means those sharply higher 2022 prices have not gone back down. Prices have risen by a further 8.0% on top of them. Prices only genuinely fall when inflation turns negative.
With 2021 as the base year (100), the Colombo Consumer Price Index (CCPI) stood at about 208.8 in August 2026 (Department of Census and Statistics, CCPI). A basket of goods that cost Rs. 100 in 2021 now costs about Rs. 208.80, so the price level has almost doubled since 2021. This is the main reason the cost of living has not come down.
Prof. Wasantha Athukorala, Professor of Economics, University of Peradeniya
To understand the wider picture, we spoke to Wasantha Athukorala, Professor of Economics at the University of Peradeniya. His comments are below.
“We use various criteria when we measure an economy: gross domestic product, the nominal value of GDP, real GDP, per capita income, the level of investment coming into the country, and the state of government revenue and spending. The view put forward by the Central Bank is based on real GDP. Sri Lanka recorded its highest real GDP in recent times in 2018. After that, nominal GDP increased considerably. So, we have now come back to that earlier position, which is a particularly good situation. We achieved positive growth in both 2024 and 2025, and the first quarter of 2026 showed exceptionally good growth. By the end of this year, we can reasonably expect growth of around 4.5% to 5%.
A country’s economy has two sides: the domestic economy and the economy it conducts with other countries. In the domestic economy, government revenue and spending matter most. Looking at the first six months of this year, government revenue has grown substantially, by close to 30%. Government spending has been kept under considerable control, and we can see the government gradually increasing investment spending.
Domestic debt becomes a problem when the gap between revenue and spending grows large. Because that gap has not widened much, the government has not had to borrow domestically again and again. That shows domestic borrowing has reached a good level that is no longer a burden on the country. On the external side, there are several aspects, especially imports and exports. Exports are not showing sufficient growth, while imports are growing strongly. That is not good for the economy, and it is why the balance-of-payments imbalance keeps persisting. At the moment it is being covered to some extent by tourism earnings and remittances. But tourism earnings and remittances are very uncertain; they can disappear at any moment.
So, on foreign trade, we cannot be satisfied with the current situation at all. The country urgently needs serious reforms there. On foreign debt, we do not see a significant increase. Debt restructuring has largely been completed, and what remains is restructuring with official creditors, meaning relatively small amounts owed to various countries. The large restructurings are finished. From that side it is a somewhat positive situation, and based on the nature of this debt, the rating agencies have raised our ratings to some extent. So, in that respect we can be reasonably satisfied with the economy.
When dealing with other countries, the exchange rate, and the Central Bank’s reserves matter. Reserves are still only around US$5.5 billion. We really need to work to raise that considerably; it is hard to be satisfied with the current level. The rupee has also shown a slightly depreciating trend. That depreciation, together with the crisis that came with the recent oil shock, has gradually created inflationary pressure, and we have seen inflation rise step by step in recent months. Rising inflation means a rising cost of living, and that can hit the poor in this country hard.
It is difficult for any government or policymaker to push every economic indicator forward at once because we are moving ahead while facing setbacks and crises in the global economy. At the same time, the cyclone destroyed a considerable share of GDP, damaged infrastructure, and seriously affected agriculture. We also know that severe drought is affecting some districts. The economy is being managed alongside all of this. So, from the government’s side there are many significant positive developments. But the process of empowering the rural economy and turning rural people into stakeholders in the economy is still not happening.
Join Us
Join us to learn more about our fact-check investigations.
Facebook | Twitter | Instagram | Google News | TikTok
Conclusion
Looking at the current trends, achievements and challenges, Sri Lanka has made a significant recovery and regained stability on key macroeconomic indicators: GDP growth, government revenue management, and debt restructuring. Growth has continued in 2026, though it eased to 4.2% in the second quarter, and real output is close to, but not yet fully back at, pre-crisis levels.
The benefits of that stability have not yet properly reached ordinary people or the rural economy. According to the World Bank, poverty was alarmingly high at 24.5% in 2024, and household incomes, jobs and welfare remained below pre-crisis levels. So “returning to where we were” is broadly true for output, but not yet for quality of life.
With a high cost of living, inflation climbing again and an imbalance in foreign trade, the economy remains exposed to risk. The Central Bank Governor stressed that continued fiscal discipline and reform are essential, while Prof. Wasantha Athukorala pointed to the need for stronger exports, larger foreign reserves, and a rural economy whose people become direct stakeholders in the recovery.
Title: Is Sri Lanka’s Economy Back to Pre-Crisis Levels? Output Nearly, Cost of Living No
Fact Check By: BP Hansani
Result: Insight
