Crisis-hit Sri Lankan economy rebounds as tourists return

COLOMBO: Sri Lanka’s economy rebounded strongly in the fourth quarter of 2023 from the island nation’s unprecedented financial crisis as tourism arrivals rose, the government said Saturday.

Agriculture, industries and services boosted the expansion to 4.5 percent in the December quarter compared to a 12.4 percent contraction a year earlier, the census and statistics department said.

It added however that the economy shrank by 2.4 percent overall during 2023 compared to a contraction of 7.8 percent in 2022, when the country defaulted on its $46 billion foreign debt.

“Sri Lanka’s economy experienced some kind of duality in 2023,” the department said in a statement, noting that the first half of the year recorded negative growth while the economy bounced back in the second.

“The long-awaited boom in tourism came towards the end of the year,” the department said, adding that worker remittances too had improved.

The number of tourists visiting the South Asian nation jumped to 210,000 in December, more than double the 91,900 a year earlier.

Sri Lanka is currently drawing down a four-year $2.9 billion bailout loan from the International Monetary Fund and is in talks with foreign creditors over a debt restructure.

The peak of the economic crisis in 2022 saw months of food, fuel and pharmaceutical shortages after the island ran out of foreign exchange to pay for imports.

The resulting civil unrest forced the ouster of then-president Gotabaya Rajapaksa when protesters stormed his residence in July of that year.

His successor Ranil Wickremesinghe has doubled taxes, withdrawn generous energy subsidies and raised prices of essentials to shore up state revenue.

Sri Lanka's agriculture sector grew 2.6 percent from a year earlier, but industrial output shrank by 9.2 percent while services decreased by 0.2 percent.

"Growth benefited from a stronger currency, higher remittances and better tourism revenue in the second half of 2023, which fuelled positive economic sentiment," the government statement said.

Sri Lanka's economy contracted 7.8 percent in 2022 as a severe foreign exchange crisis coupled with political instability devalued its currency and sent inflation and interest rates soaring.

Helped by a $2.9 billion International Monetary Fund bailout secured last March, Sri Lanka's economy began a painful path towards recovery and is expected to grow 1.8 percent this year. "We expect recovery to be stronger in the second half of the year driven by sectors such as tourism and financial services," said Dimantha Mathew, head of research at First Capital.