Sri Lanka is now moving towards the lowest economic growth among 148 nations even below the economic growth of South Sudan, the World Bank global economic prospects report (published in Jan 2023) revealed.
According to the World Bank report Sri Lanka is expected to have the lowest economic growth of -4.2 percent in real GDP with unprecedented contraction.
Sri Lanka is followed by Russian Federation with -3.3 percent of GDP, Syrian Arab Republic -3.2, Equatorial Guinea -2.6, Belarus-2.3, Haiti -1.1, Chile -0.9 and South Sudan 0,the report indicated.
Sri Lanka’s economy is projected to register a real contraction of around 8.0 percent in 2022 and a gradual recovery from the second half of 2023, the Central Bank said.
Releasing the outlook for the economy for 2023, the Monetary Board of the Central Bank said that the headline inflation is expected to move along a disinflationary path with a deceleration in the first half of 2023 and reaching the desired levels of inflation towards the end of 2023.
According to the Central Bank, the monetary policy will remain focused on ensuring price stability over the medium term and inflation expectations to remain well anchored along the projected disinflation path.
Meanwhile, measures are underway to secure financing assurances from official creditors for the debt restructuring process aimed at ensuring medium-term public debt sustainability.
“With significant progress being made at present in relation to the interaction with the Sri Lankan creditors, the envisaged IMF facility is expected to materialize in early 2023,” the Central Bank said.
The sacrifice made by individuals and businesses during these difficult times would be meaningful only when economic stability is restored over the medium to long term.
“Towards that end, collective and coordinated efforts are needed from all corners of society to ensure that the economy makes a sustainable recovery.”
The excessively high levels of interest rates observed at present are expected to moderate in the period ahead as money market liquidity conditions improve and the risk premia attached to debt restructuring concerns assuage.
The Central Bank has already requested the banking and non-banking sector institutions to avoid unhealthy competition for raising deposits by offering high rates of interest, which has led to excessive adjustments in all market interest rates, including the lending rates, well above the adjustment of policy interest rates.
Sri Lanka, which in the 1970s was being hailed as a development success story for a low-income nation, is now mired in a financial and economic disaster, its worst yet since independence in 1948.
Despite notable investments in infrastructure projects, and a largely stable growth rate from 2013 to 2019, the Sri Lankan story was marred by a series of untimely and mismanaged economic measures that led to the current meltdown.
External factors have compounded the catastrophe, including the COVID-19 pandemic and the Ukraine-Russia conflict.
Six crucial economic issues that have led to the Sri Lankan crisis: Theyare the impact of the 2019 tax cuts on the domestic economy; successive BOP crises; a series of 17 IMF bailouts that went wrong; the sudden disastrous switch to organic farming; the downfall of the tourism sector following the 2019 Easter Sunday bombings; and soaring external debt.