Economy may shrink 3.5% in 2023: President

COLOMBO: Sri Lanka’s economy may shrink 3.5 percent in 2023, and as much 4.0 percent if global conditions weaken, President Ranil Wickremesinghe has said.

In 2022, Sri Lanka’s economy could have shrunk as much as 11 percent, he said.

However the economy is expected to recover by 2024, he said.

Sri Lanka’s economy has a tendency to recover about 18 months after a currency crisis, as inflation flattens out and interest rates easing giving a breathing space for people to consume and invest as budget deficits come down.

Sri Lanka’s economy contracted 7.1 percent up to the third quarter after the currency collapsed from 200 to 360 to the US dollar after two years of money printing to suppress rates and a steep tax cut for ‘stimulus’.

Sri Lanka now has to raise taxes to reduce the deficit, he said.

Sri Lanka’s state revenues fell to 8.7 percent of GDP in 2022 from 13.5 percent in 2018 and 12.7 percent in 2019 after a steep cut in December 2019.

Sri Lanka is now seeking international support and a re-structuring of debt.Sri Lanka had to raise taxes if they wanted international support, President Wickremesinghe said.

Sri Lanka has to raise revenues to regain the confidence of countries that are lending to Sri Lanka, as state revenues after state revenues collapsed due to tax cuts made in December 2019 by economic bureaucrats for stimulus.