SL contracts by 14.9% in real terms in 2023 7.9% decline from previous estimate
By: Staff Writer
February 01, Colombo (LNW): The construction industry in Sri Lanka contracted by 14.9% in real terms last year, down from the previous estimate of a 7.9% decline, owing to the ongoing economic crisis, a steep currency depreciation and rising inflation.
According to the latest report of purchasing manager index released by the Central Bank released recently, the construction PMI, as reflected by the Total Activity Index value of 48.6 in December 2023, indicated a slower contraction in construction activities compared to November 2023.
The respondents mentioned that the limited availability of project work continued to hamper the activity levels.
New Orders declined in December, broadly at a similar pace compared to the previous month. Many respondents mentioned that currently they are heavily relying on foreign-funded projects.
Meanwhile, Employment contracted mainly due to the layoffs in line with the project completions.
Further, Quantity of Purchases remained contracted during the month since the ongoing work and the upcoming projects continued to decline.
In the meantime, Suppliers’ Delivery Time remained lengthened in December With the lack of upcoming projects and the impact of tax revisions on price levels, the industry outlook for the next three months is on the downside.
Further weighing on construction activity is the suspension of major infrastructure projects due to financial issues, owing to an increase in foreign debt and decreasing tax revenues.
According to World Bank, as of December 2022, Sri Lanka has an external debt burden of around Rs16.7 trillion (US$52 billion). Of that, 40% is owed to private creditors, including financial institutions, while the rest is owed to bilateral creditors, of which China, Japan and India are the largest.
Despite near-term challenges, the medium to long term growth prospects of the Sri Lankan construction industry are expected to be positive, assuming an improvement in economic stability and a resumption of investment in transport, housing, and renewable energy projects, and government policies to promote manufacturing and exports.
The Sri Lankan construction industry is expected to register an average annual growth of 5.6% from 2024 to 2027, picking up from the low base in 2022 and 2023.
In January 2023, India’s state-owned railway company Indian Railway Construction International (IRCON) launched a Rs 28.9 billion ($90 million) program for the up gradation of the railway track in Jaffna.