The Institute of Policy Studies of Sri Lanka (IPS) has been publishing the State of the Economy report since 1992 with a complementary theme selected each year. The report provides an assessment of Sri Lanka’s economic performance in 2007/08 and comments on the outlook in the context of developments in the global economy. The report notes while the Sri Lankan economy has been performing creditably to post an annual average growth rate of 6.9 per cent during 2005-07, higher growth has also been accompanied by a weakening of macroeconomic stability. Despite a much tighter monetary policy stance adopted in 2007, the lagged effects of past excesses in monetary aggregates and cost push effects from price increases in fuel and food have ensured a continuation of inflationary pressures into 2008.