Sri Lanka’s GDP is set to contract by 3 percent in 2023, before recovering slightly to grow by 1.5 percent next year, according to an International Monetary Fund delegation that is in Sri Lanka to monitor compliance of the conditions it laid out for a bailout package approved earlier this year.
“Given the weak external environment and domestic policy tightening, aimed at restoring macroeconomic stability, the economy is expected to contract by 3 percent in 2023, before registering a modest growth of 1.5 percent in 2024,” Krishna Srinivasan, the director of IMF’s Asia and Pacific Department, said in a press conference on Monday, although insisting that the outlook critically depended on the implementation of economic reforms.
In March, the IMF had approved a $3 billion bailout package for Sri Lanka, out of which the first tranche of $330 million was released immediately.
The agreement is tied to on an ambitious fiscal consolidation by the embattled country along with restoring the sustainability of public debt and other structural reforms.
The financial body will carry out periodic visits to monitor the fulfillment of its conditions, such as the one its delegates began in Colombo last week.
“The authorities are making good efforts with all the creditors and the engagement is quite well. In terms of a timeline, the expectation is that the restructuring scheduling is to be completed by the first review of the program, which is in September,” Srinivasan commented.
Sri Lanka sought IMF’s help in March 2022 to fight against its worst financial crisis since independence from the British in 1948, and the two sides reached an initial agreement for an urgent bailout package in September.
In dire straits economically, Colombo defaulted on its foreign debt payments last year, although once the bailout package was approved, its biggest creditor China became the first country to invest again in the island in April.
The crisis that engulfed the island since last year has been attributed to misguided fiscal policies and sky-high debt, apart from a sharp drop in foreign currency inflow during the Covid-19 pandemic.
Sri Lanka has an annual debt load of around $6 billion for the next five years, around 10 times higher than its current foreign currency reserves, and its public debt climbed to 128 percent of the GDP in 2022, according to the IMF. EFE