Sri Lanka’s central bank has laid out the extent of the country’s worst economic crisis in more than 70 years.

In its annual report, the bank outlined how last year wages failed to keep up with the soaring cost of everything from food to fuel.

“Several inherent weaknesses” and “policy lapses” helped to trigger the severe problems that engulfed the economy, the bank says.

The bank now expects the economy to return to growth next year.

The prediction is more optimistic than the International Monetary Fund (IMF), which predicted a contraction in 2023 of around 3% and growth of 1.5% next year.

The central bank’s report also outlined how headline inflation reached almost 70% in September as prices of fresh fruit, wheat and eggs more than doubled.

At the same time the cost of transportation and essential utilities such as electricity and water rose even faster.

Defaults happen when governments are unable to meet some or all of their debt payments to creditors.

This damaged its reputation with lenders, making it even harder to borrow money on the international markets.

“The Sri Lankan economy faced its most onerous year in its post-independence history,” the report said.

An “unsustainable” economic model “steered the country towards a multifaceted disaster,” it added.

Sri Lanka owes about $7bn (£5.7bn) to China and around $1bn to India. In February, both countries agreed to restructure their loans, giving Sri Lanka more time to repay them.

Sri Lanka’s government is currently negotiating its debt repayments with bondholders and creditors before the IMF reviews the situation in September.