Sri Lanka’s agriculture sector grew 2.6 per cent from a year earlier, but industrial output shrank by 9.2 per cent, while services decreased by 0.2 per cent, official data showed,.

Sri Lanka’s economy shrank 2.3 per cent in 2023, official data showed, as the island nation struggled to break out of its worst financial crisis in decades.

But the economy grew 4.5 per cent in the fourth quarter setting the stage for a recovery this year, Sri Lanka’s Census and Statistics Department said in a statement.

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

Sri Lanka’s economy contracted 7.8 per cent 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 per cent 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.

“Lower interest rates and moderating inflation will also give people more disposable income and improve consumption.”

But challenging reforms also lie ahead, such as higher taxes, reforms of loss-making state enterprises and a restructuring of Sri Lanka’s foreign debt.

An IMF delegation is in Colombo for the second review of the programme. Some analysts expect the Central Bank of Sri Lanka (CBSL) to reduce interest rates later this month, continuing its policy easing having slashed interest rates by 650 basis points since June to boost growth, with inflation having fallen to 5.9 per cent in February from a high of 70 per cent last September.

Sri Lanka is committed to repaying its debt within the 2027-2042 schedule, President Ranil Wickremesinghe said on Wednesday, adding that successful debt restructuring negotiations will bring annual external debt payments down to 4 per cent of GDP.

The island nation defaulted on its foreign debt in May 2022 after its economy ran into an unprecedented financial crisis triggered by a severe foreign exchange shortage.

Sri Lanka kicked off negotiations with its creditors after securing a $2.9 billion bailout from the International Monetary Fund (IMF) in September 2022 but has still to reach an agreement with private bondholders.

The country reached an agreement with its bilateral creditors including India, China and Japan last November.

Sri Lanka is likely to stay in default until 2027 President Ranil Wickremesinghe told parliament, which would allow time for the island nation to rebuild its economy and return to international financial markets to raise funds to resume debt repayments.

“Sri Lanka’s economy commenced its revival in the third quarter of 2023 and international financial institutions have forecast a potential economic growth ranging from 2 per cent to 3 per cent for 2024,” he told lawmakers.

“If government revenue can be maintained at a substantial level then debt servicing will not impose a burden on the country.”

Sri Lanka’s foreign reserves, which stood at less than $20 million in April 2022 at the height of the country’s crisis, have been rebuilt to over $3 billion, Wickremesinghe added.

Meanwhile Abdullah Sultan Al Owais, Chairman of the Sharjah Chamber of Commerce and Industry (SCCI), and Alexi Fonseka Gunasekera, Consul General-designate of the Democratic Socialist Republic of Sri Lanka to Dubai and the Northern Emirates, have discussed ways to strengthen economic cooperation and foster investment partnerships between business communities in both nations.

During a meeting held at the SCCI headquarters in the presence of Mohammed Ahmed Amin Al-Awadi, Director General of SCCI, and Fatima Khalifa Al Mokarrab, Director of SCCI’s International Relations Department, the two sides explored avenues for incentivising businesses across various sectors to bolster the exchange of information regarding investment opportunities.

During the gathering, the two sides emphasised the imperative of private sector entities’ participation in trade and industrial exhibitions. Discussions also delved into cooperation prospects between Sharjah and Sri Lanka’s business communities and strategies to promote reciprocal visits of trade delegations.

Furthermore, the meeting put the spotlight on opportunities to hold new business forums and open new communication channels, thereby enhancing coordination between businessmen in the two communities.