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Sri Lankan Economy Getting Back on Track; Records 4.5% Growth in Q4 of 2023

 Sri Lanka  |    

2024/03/29 17:48 pm

Colombo: After six successive quarters of negative growth, Sri Lanka's bankrupt economy is estimated to have recorded a growth of 4.5% year-on-year in the fourth quarter of 2023, the Central Bank announced on March 26.

It was only during the third quarter of 2023 that the economy recorded positive growth after six successive quarters of negative growth experienced by the cash-strapped economy.

The headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index, had decelerated to 5.9% in February from 6.4% in January.

The gross official reserves improved to USD 4.5 billion by the end of February 2024, which includes the swap facility from the People's Bank of China.

Governor Nandalal Weerasinghe said the reserve buildup was better than the Central Bank's expectations.

The reserve buildup was supported by considerable net purchases by the Central Bank from the domestic foreign exchange market amidst increased foreign currency inflows compared to outflows, Weerasinghe said.

The Sri Lankan rupee, which was appreciated by 12.1% against the US dollar in 2023, continued to show an appreciation of 6.7% thus far in 2024, he said.

Weerasinghe said the agreements on debt restructuring with sovereign bond-holders could be completed by June in time for the next review of the IMF bailout programme.

Weerasinghe said despite the sovereign default, the commercial loans granted by India along with currency swaps with the Reserve Bank of India continue to be serviced.

When the economic crisis kicked in early 2022, India's extension of USD 4 billion worth of assistance provided a lifeline to Sri Lanka to import fuel and essentials.

Inflation Level Also Dips

Sri Lanka's statistics office said that inflation had slowed to 0.9% in March, the lowest year-on-year price increase since an unprecedented economic crisis.

The island nation defaulted on its USD 46 billion foreign debt in April 2022 after a foreign exchange wipeout left it unable to import food, fuel and other essentials.

This month's inflation reading, from the benchmark Colombo Consumer Price Index, is a huge drop from the peak of nearly 70% in September of that year.

The central bank this week cut its benchmark lending rate from 10% to 9.5% -- the first reduction in four months -- in a measure it said would boost "the ongoing revival of economic activity".

Months of protests during the economic crisis led to the ouster of then-president Gotabaya Rajapaksa when demonstrators stormed his residence.

His successor Ranil Wickremesinghe has sharply raised taxes, cut energy subsidies and secured a USD 2.9 billion rescue package from the International Monetary Fund.

Both Wickremesinghe and the IMF have said the South Asian nation was "gradually" emerging from the crisis following the austerity measures.

Sri Lanka racked up record high inflation that peaked at 70% in September 2022 after its economy was pummelled by the worst financial crisis in decades, triggered by a plunge in foreign exchange reserves.

Helped by a USD 2.9 billion program from the International Monetary Fund, Sri Lanka's economy has slowly stabilised and is expected to return to growth this year after contracting 2.3% in 2023.

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