Sri Lanka: Large fiscal and current account deficits

Annual real GDP growth decelerated from around +8% in 2010-2011 to +6.3% in 2012, as a result of a sharp slowdown in external trade activity and some monetary tightening. Headline inflation accelerated from 4.9% at end-2011 to 9.2% at end-2012 and 9.8% y/y in February 2013, before easing to 6.1% y/y in July 2013. Public finances are very weak and remain a cause of concern. The external position is also weak.