Bankrupt Sri Lanka economy shrinks 1.6pc in first quarter

By News Desk

Colombo: Sri Lanka´s economy shrank 1.6 percent in the first quarter of this year as an unprecedented financial crisis began to impact commercial activity, according to official data.

The island nation´s painful downturn has seen months of lengthy blackouts, runaway inflation and severe shortages of vital consumer goods.

A shortage of foreign currency needed for the import of fuel, fertiliser and other essentials had a devastating effect on the economy just as the coronavirus pandemic was receding.

The January-March contraction was worsened by the "adverse effects" of inflation and Sri Lanka´s crashing currency, the statistics department said.

The agency noted that a ban on pesticide and fertiliser imports last year, since repealed, had a devastating effect on farmers with the first-quarter rice harvest down 33 percent.

It added that an ongoing fuel shortage was having serious impacts on transport and industry.

Sri Lanka has defaulted on its $51 billion foreign debt and is now in bailout talks with the International Monetary Fund.

Protesters have demanded the resignation of President Gotabaya Rajapaksa over government mismanagement of the nation´s finances.

Inflation hit a record 45.3 percent last month while the rupee has depreciated more than 50 percent against the dollar this year.

Prime Minister Ranil Wickremesinghe warned in parliament last week that the country was facing a record recession.

The government is seeking discounted oil from Russia and Qatar to address its critical shortfall in meeting the nation´s energy needs, with petrol sales currently banned for two weeks except for emergencies.

According to the data agriculture shrank by 6.8 percent and industries by 4.7 percent while services expanded by 0.7 percent, compared to the same period a year ago. “The shortage of chemical fertilizers during this period had a severe impact on agriculture production, especially the production of rice,” the statement said.

The island is struggling to pay for imports of basic goods including food, fuel, fertiliser, and medication due to a severe dollar shortage.

The state-run Census and Statistics Department said inflation, currency devaluation, and low foreign exchange reserves were the main causes of the contraction.

For the agriculture sector, the fall was the steepest since 2015, it said. Sri Lanka’s economy expanded by 4 percent in the same quarter a year ago and saw full-year growth of 3.3 percent in 2021, rebased data showed.

Second-quarter growth could contract by as much as 5 percent, two analysts told Reuters, given higher inflation and political uncertainty in April and May. The country is potentially days away from running out of fuel and has been unable to procure a fresh shipment to date.