The contraction is the largest in the crisis-hit island nation’s 75 years of independence.
Sri Lanka’s crisis-hit economy shrank a record 7.8 percent last year, official data shows, as the country grapples with its worst financial crisis in seven decades.
The island’s gross domestic product (GDP) contracted 12.4 percent in the fourth quarter, according to figures released Thursday by the state-run department of censuses and statistics.
Sri Lanka’s growth is expected to contract by 3 percent this year, Moody’s Investors Service said Monday, but growth is expected to recover in 2024.
An unprecedented economic crisis sparked massive protests in the island nation, culminating last July when a mob stormed the home of then-President Gotabaya Rajapaksa, forcing him to flee the country and resign.
Since then, a new government has scrambled to repair Sri Lanka’s battered public finances and secure a much-needed bailout from the International Monetary Fund (IMF).
Last year’s contraction — the largest in the country’s 75 years of independence — compared to a 3.5 percent growth in 2021 and a 4.6 percent contraction in 2020 as the coronavirus pandemic hit.
It was “caused by the deepening economic crisis … frequent power cuts, shortages of fuel, raw materials, (and) foreign currency,” the census and statistics department said in a statement.
The data showed some improvement in Sri Lanka’s fiscal position, with inflation moderating to around 50 percent in February, down from a record high of 69.8 percent in September.
President Ranil Wickremesinghe has increased taxes and cut generous subsidies on fuel and electricity to boost government revenues after his predecessor defaulted on Sri Lanka’s $46 billion foreign debt last year.
The reforms are a condition of a $2.9 billion bailout package from the IMF, which Sri Lanka expects to finalize next week.
But the tax and price increases were frankly unpopular, sparking protests and industrial shutdowns across the country.
About 40 unions warned on Thursday they would plan a general strike next week if their demands for concessions on the austerity program were not met.
Sri Lanka plans to announce a debt restructuring strategy in April and step up talks with commercial creditors ahead of an IMF review of a six-month bailout package, the central bank’s governor said last week.
Wickremesinghe has said that Sri Lanka is expected to remain bankrupt until at least 2026 and stressed that his government has no choice but to implement the reforms demanded by the IMF.
The Census and Statistics Department said the agriculture sector shrank 4.6 percent last year, while manufacturing shrank 16 percent and the services sector fell 2 percent from a year earlier.
Sri Lanka’s economy contracted 11.8 percent year-on-year in the July-September quarter, the country’s second-worst quarterly contraction on record.
“These figures are broadly in line with expectations. In the last three months of 2022, Sri Lanka was hit by very high inflation, fuel shortages and high interest rates,” said Sanjeewa Fernando, senior vice president of research at Asia Securities.
“For the remainder of this year, with IMF funds expected, the central bank should be able to keep the currency stronger, eventually lower interest rates and continue to see inflation decline.”