Only the agricultural sector resists, which grew by 0.8%. Industry and services show a significant setback (-23.4% and -5%). Specific measures are needed to revitalize industry and services. High interest rates and the high cost of electricity weigh heavily. Talks with the IMF for debt restructuring before September.
Colombo () – A sharp slowdown in the island’s economy, confirmed by the latest data on Gross Domestic Product (GDP) for the first quarter of January-March 2023. Official statistics show a contraction of 11.5%. In the analysis of the different sectors, agriculture registered a modest growth of 0.8%, which implies a certain degree of resilience. The situation of industry and services is different, which had a significant decrease, the first with a negative sign of 23.4% and the second of 5%, according to data published by the Department of Statistics and Censuses.
In addition, the “taxes less subsidies on products” component contributed around 5.1% of GDP during the same period. These figures reflect the challenges faced by these sectors and highlight the need for specific interventions to revitalize economic growth, while the government hopes to return to positive growth rates in the last quarter of the current year.
Economic analyst Mahesh Kariyawasam explains to that “the negative growth rate in this period shows the true dimension of the economic recession.” Overall, the economy got off to a rocky start in 2023, with a significant contraction in GDP and negative trends in key sectors. Policy makers and stakeholders need to closely monitor these developments and implement effective measures to mitigate the downturn and foster a sustainable recovery.”
According to academic Shehan Thalpavila, “the economic context did not encourage investment in this period due to high interest rates and the high cost of electricity. Therefore, many public and private works have come to a standstill due to rising construction prices, while government-imposed restrictions on imports, including raw materials, have had a negative effect on the manufacturing industry and markets. services. As a consequence of the high prices, there was a decrease in production in the manufacturing industry and in some agricultural activities. In addition, in this quarter -concludes the expert- there was also a drop in exports of clothing products”.
Authoritative sources from the Central Bank of Sri Lanka (CBSL) comment that “for the current year a contraction in GDP of 2% is forecast, while the International Monetary Fund (IMF) estimates a contraction of 3%. This is slightly higher (in the first quarter) than our expectations of 9-10%. However, we expect growth to turn positive again in the second half of 2023. Meanwhile, the CBSL cut interest rates by 250 basis points at the beginning of the month – for the first time in three years – with the aim of stimulating the economy.
In March, the Colombo government reached an agreement with the IMF for a rescue plan of about three billion dollars, pending the restructuring of the debt with creditors. Before Sri Lanka received the Fund instrument, the island’s economy received a $4 billion aid package from India. Sri Lanka has also activated lines of credit from India for fuel and imports of basic necessities, which brought relief to the population protesting the bad government.
Sri Lanka is facing the worst economic crisis since its independence. Last year there was a contraction of more than seven percentage points and the difficulties led the population to take to the streets, with widespread demonstrations throughout the island. The entire Rajapaksa family, later expelled from politics, is under fire, including former President Gotabaya and his brother, former Prime Minister Mahinda. At this time, some signs of economic recovery can be seen thanks to the IMF bailout, the improvement in the inflow of dollars and some reduction in inflation. However, the country has yet to conclude debt restructuring talks before September, when the Fund’s expert review will take place.