Sri Lanka’s economy shrinks 11.5%

COLOMBO: Sri Lanka’s economy shrank by 11.5 percent in the first quarter just before an IMF bailout kicked in, official figures showed in an AFP report.

The contraction in the first three months compared with shrinkage of 0.5 percent in the corresponding period of 2022, and a decline of 12.4 percent in last year’s final quarter.

A currency crisis from late 2021 led to severe shortages of food, fuel and medicines and triggered months of protests that led to the toppling of former president Gotabaya Rajapaksa 11 months ago.

Sri Lanka defaulted on its $46 billion external debt in April last year, and is still negotiating with its bilateral and private creditors on repayments.

Thursday’s figures confirmed that economic challenges persist.

“Industry and services activities declined by 23.4 percent and 5.0 percent respectively in the first quarter of 2023,” the statistics office said in a statement.

It said only the agricultural sector had shown growth, but that was a modest 0.8 percent, and followed the lifting of a ban on agrochemicals and easier access to fertiliser than late last year.

The International Monetary Fund released the first $330 million of a $2.9 billion bailout in late March.

It forecasts Sri Lanka’s economy will contract by 3.1 percent this year.

The World Bank is more pessimistic, predicting a 4.2 percent contraction.

The IMF warned earlier this month that Sri Lanka’s recovery remained challenging, despite “tentative signs of improvement.”

Inflation, which peaked at nearly 70 percent in September, moderated to 25.2 percent last month.

Foreign debt restructuring was previously held up as the country’s main bilateral creditor, China, was initially reluctant to take a haircut and instead offered more loans to pay old debt.

Just over $14 billion of the total foreign credit is bilateral debt to foreign governments, 52 percent of which is owed to China.