COLOMBO - Sri Lanka will focus on transforming the economy and prepare to resume debt repayments from 2028, President Anura Kumara Dissanayake said on Monday, presenting his first full budget after being elected to the top office last year.

The budget is expected to strengthen the country's recovery from a debilitating financial crisis and align with a $2.9 billion IMF bailout.

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Dissanayake said that he expects the economy to grow at 5 percent in the medium term and plans to maintain low inflation, while also taking steps to keep exchange rates stable.

Sri Lanka will maintain a primary surplus of 2.3 percent of GDP and the entire budget has been formulated to meet that target, the president, who is also the finance minister of the island nation, told parliament.

His government will ensure that Colombo will repay all its debt and expects a steady reduction in poverty levels in the South Asian nation.

A severe drain in dollar reserves plunged the island nation into turmoil three years ago, sending inflation soaring, depreciating its currency and forcing a $25 billion foreign debt default.

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Since locking down $2.9 billion in emergency funding from the International Monetary Fund in March 2023, Sri Lanka has posted a faster than expected recovery. Inflation has eased, the central bank has slashed interest rates to pre-crisis levels, and debt restructuring was completed in December.

Meeting the IMF targets is crucial for Sri Lanka to improve its credit rating after exiting from default status, so the country can eventually return to international financial markets to borrow and repay its debts from 2028 onwards.

The parameters set out by IMF include an ambitious deficit target of 5.2 percent of GDP and raising revenue to 15.1 percent of GDP in 2025 to secure the next tranche of about $333 million under the bailout.

Sri Lanka's current reserves are at $6 billion, enough to cover four months of imports, the latest central bank data showed. In the depths of the crisis, reserves had shrunk to just $1.9 billion at the end of 2022.

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Sri Lanka's economy is expected to have grown by 5 percent in 2024, according to the latest central bank data, after contracting 2.3 percent in 2023. The World Bank estimates Sri Lanka will grow 3.5 percent this year.