COLOMBO: Sri Lanka’s central bank laid out the extent of the country’s unpleasant economic crisis in more than 70 years.
In the annual report, the bank outlined how last year’s wages failed to keep up with the soaring cost of everything from food to fuel.
The bank said, “Many inherent weaknesses” and “policy lapses” helped to trigger the severe economic problems that engulfed the South Asian nation.
Central bank expects economy to return to growth next year
The bank expects the economy to return to growth next year. The Central Bank of Sri Lanka forecasts that the economy will shrink by 2 percent this year but expand by 3.3 percent in 2024.
The prediction is more optimistic than the IMF, which forecasts a contraction in 2023 of around 3 percent and growth of 1.5 percent next year. The central bank’s report outlined how headline inflation reached almost 70 percent in September as fresh fruit, eggs and wheat prices more than doubled.
The cost of transportation and essential utilities such as electricity and water rose even faster.
The previous year, the economy shrank by 7.8 percent, and the country defaulted on its foreign debt for the first time since independence from the United Kingdom in 1948.
Defaults happen when governments cannot meet some and all of their debt payments to creditors. This damaged its reputation with lenders, making borrowing money on the global markets even harder.
The report said, “The Sri Lankan economy faced its most onerous year in its post-independence history,” It added that An “unsustainable” economic model “steered the country towards a multifaceted disaster”
Sri Lanka owes about seven bn dollars to China and around one bn to India. In February, both countries agreed to restructure their loans, giving Sri Lanka more time to repay them. The previous month, the IMF agreed to lend Sri Lanka 3bn dollars. That was on top of a 600m dollars loan from the World Bank last year.
Sri Lanka’s government is negotiating its debt repayments with bondholders and creditors before the IMF reviews the situation in September.
