Official data reveals Sri Lanka’s crisis-hit GDP shrunk by a record 7.8% last year. The state-run census and statistics agency said Thursday that the island’s fourth-quarter GDP fell 12.4%. On Monday, Moody’s Investors Service forecast Sri Lanka’s growth will fall by 3 percent this year but return in 2024. Last July, a crowd attacked the residence of then-President Gotabaya Rajapaksa, forcing him to escape and resign. Since then, a new administration has attempted to fix Sri Lanka’s public finances and win an urgent IMF bailout.
Last year’s shrinkage, the largest in the country’s 75 years of independence, after 3.5 percent growth in 2021 and 4.6 percent contraction in 2020 during the coronavirus epidemic. “Caused by the development of the economic crisis… frequent power outages, shortages of gasoline, raw commodities, (and) foreign currency,” the census and statistics agency stated. In February, inflation dropped to roughly 50% from a record high of 69.8% in September, improving Sri Lanka’s fiscal condition. When his predecessor defaulted on Sri Lanka’s $46bn foreign debt last year, President Ranil Wickremesinghe hiked taxes and cut gasoline and energy subsidies to increase income. Sri Lanka aims to finalize a $2.9bn IMF bailout plan next week, which requires changes. The tax and price rises have been widely unpopular, causing nationwide protests and industrial stoppages. On Thursday, 40 labor unions threatened to strike next week if their austerity demands were not satisfied. Last week, Sri Lanka’s central bank governor said it will reveal a debt-restructuring strategy in April and increase negotiations with commercial creditors before an IMF bailout review in six months. Wickremesinghe stated Sri Lanka will be insolvent until 2026 and that his administration must execute IMF reforms. The census and statistics department said that agriculture shrank 4.6 percent, industry 16 percent, and services 2 percent last year.
The July-September quarter was Sri Lanka’s second-worst quarterly decline. “These figures match expectations. According to Asia Securities senior vice president of research Sanjeewa Fernando, Sri Lanka had severe inflation, gasoline shortages, and high interest rates in the last three months of 2022. With IMF money forthcoming, the central bank should be able to strengthen the currency, lower interest rates, and cut inflation for the rest of the year.
