The Central Bank of Sri Lanka's own account of the 2022 crisis and its tightening response

In governor Nandalal Weerasinghe's own retrospective, the Central Bank of Sri Lanka traces the 2022 crisis not to any single external shock but to long-standing fiscal imbalances that had built unsustainable levels of sovereign debt over many years, with warnings from the International Monetary Fund as early as 2020 going unheeded as fiscal expansion continued. The result was a simultaneous sovereign-debt and balance-of-payments crisis that depleted official reserves and pushed inflation to a peak of about 70 percent in September 2022. Starting in April 2022, the central bank imposed what Weerasinghe called very tight monetary conditions, raising policy rates sharply and pairing the move with a deliberate communication strategy meant to anchor inflation expectations rather than let them spiral further. The approach worked quickly: inflation fell from 70 percent back into single digits within about a year, a pace the governor has described as a record disinflation. That tightening was carried out alongside Sri Lanka's seventeenth International Monetary Fund bailout, an Extended Fund Facility program running through 2027, and was followed by four consecutive quarters of positive growth from mid-2023 and current-account surpluses in both 2023 and 2024, the first such surpluses in Sri Lanka in many years.