Highlighting that the current economic crisis in Sri Lanka was severely affecting the South Asian region, the Asian Development Bank further lowered Sri Lanka’s growth expectations to contraction of 8.8 per cent in this year.
The Asian Development Bank, in its previous report published in July, said the Sri Lankan economy would contract 7.6 per cent. However, considering the recent developments in the economy it has decided to further lower it.
The Development partner also said that in 2023 the Sri Lankan economy would contract 3.3 per cent.
Economic conditions deteriorated significantly since ‘Asian Development Outlook 2022’ in April on a deepening debt crisis, severe shortage of foreign exchange, and major supply shocks, the bank said.
According to the bank, these are the results of persistent and large fiscal deficits, the impact of the Covid-19 pandemic, an ill-timed move to switch from chemical to organic fertilisers, and Russia’s invasion of Ukraine.
On 18 May, Sri Lanka defaulted on its external sovereign debt for the first time after suspending service payments on certain categories of its commercial and official bilateral debt.
This resulted in its sovereign credit rating being downgraded to the restrictive/selective default category.
Limited external financing avenues and dwindling foreign reserves have led to an acute energy crisis and shortages of essential goods and services that have threatened food security and hit consumer and business confidence.
Sri Lanka’s gross domestic product (GDP) contracted 4.8 per cent during the first half of this year according to the Department of Census and Statistics, which said the economy reached Rs 6.245 trillion from Rs 6,558 trillion a year ago.
The economy during the second quarter of this year posted a contraction of 8.4 per cent after contracting 1.6 per cent during the first quarter.
During the first half, Agriculture, Industrial and Services sectors recorded contractions of 7.6 per cent, 7.1 per cent and 0.6 per cent respectively.
During the second quarter Agriculture, Industrial and Services sectors recorded contractions of 8.4 per cent, 10 per cent and 2.2 per cent respectively.
Due to the current economic situation of the country, which led to many shortages and steep depreciation of the Sri Lankan Rupee, the Central Bank of Sri Lanka is estimating that the gross domestic product would shrink more than eight per cent this year.
Central Bank Governor Nandalal Weerasinghe earlier said that the Government was expecting the Sri Lankan economy to shrink 7.5 per cent this year, however, due to the current situation it would contract more than 8 per cent.
According to him the higher the contraction the faster the country would recover.
By Mario Andree