Sri Lanka, due to adopting a focused economic reform programme, is now on track to achieve an economic growth of around 2 to 3 percent this year, said Assistant Governor, Central Bank of Sri Lanka Dr. Chandranath Amarasekara, at a special media event in Colombo yesterday.
He said that after a minus 7 percent economic contraction during the economic crisis, the country’s economy recovered to positive territory in the second and third quarters of 2023, but due to contraction in the first two quarters, Sri Lanka recorded a low growth in 2023. “However in 2024, Sri Lanka has a positive economic growth rate and would end 2024 with around 2 to 3 percent economic growth rate.”
The Assistant Governor also said that having reached the Staff Level Agreement on the Second Review in March 2024, Sri Lanka is expected to formally complete the IMF Executive Board Review in June 2024. “The third tranche is expected upon the completion of the review and receiving it will help to install additional investor confidence in Sri Lanka. It will also help to further boost foreign reserves.”
Dr. Amarasekara also said that Sri Lanka was one of quickest countries to recover from an economic crisis and the inflation which was around 70 percent was brought down to around 5 percent in around one year and the negative rating from global agencies also turned positive.
He also said that price stability has been restored and external sector resilience too has improved.
Fiscal consolidation has been strengthened and debt restructuring has reached an advanced stage. “The ongoing negotiations with private creditors are continuing and the outcome would be very favourable to Sri Lanka,” Dr. Amarasekara said.
The Assistant Governor, updating the procedure after securing the IMF financing facility, said that they temporarily suspended foreign debt service payments while initiating a debt restructuring process.
“One other key change the Central Bank did was the allowing the exchange rate to float (which brought down the US dollar from around Rs. 370 to Rs. 305), raised policy interest rates significantly (700 bps in April 2022, followed by another 200 bps) and taking measures to safeguard the stability of financial institutions.
“The government also introduced a bold package to enhance tax revenues while curtailing non-essential recurrent expenditure and froze recruitment and also temporarily suspended non-urgent capital expenditure and projects which have not commenced/ have been stopped/ have not achieved significant progress.
“The government also imposed restrictions on selected non-urgent and non-essential imports and today, excluding import of motor vehicles, all other import restrictions have been removed.
In addition, subsequent to the IMF reform programme, the government initiated restructuring of major state-owned business enterprises and this process is continuing.”
Dr. Amarasekara said that the implementation of the economic reform agenda was very fruitful and today stability has been achieved to a great extent, and economic activity is picking up.
“If the IMF reform agenda was not implemented, the counterfactual would have been unthinkable. Hence this programme should be continued,” he said.
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