Sri Lanka avoids recession in Dec quarter, GDP grows 3.7% in 2021

Sri Lanka's economy grew at a slower-than-expected 1.8% in the 4th quarter of the 2021 financial year, taking its full year growth to 3.7 per cent, data from the govt's statistics department showed

Sri Lanka avoided a recession in the December quarter, a trend that may not hold for long as the island nation faces depleting foreign currency reserves and a spillover from the war in Ukraine dims recovery prospects.

Sri Lanka’s economy grew at a slower-than-expected 1.8 per cent in the fourth quarter of the 2021 financial year, taking its full year growth to 3.7 per cent, data from the government’s statistics department showed on Tuesday.

Lower than expected fourth quarter results indicate Sri Lanka struggled to emerge from its Delta-variant coronavirus lockdown in the third quarter of 2021, analysts said, pointing out that both industries and agriculture have posted negative growth.

Inflationary pressure, which grew in the last three months of the year, as well as a unexpected tightening of rates by Sri Lanka’s central bank could be the other contributory factors, they added.

“Only services managed to grow 3.8 per cent, which was largely due to a resurgence of tourism during the last two months of the year,” said Dimantha Mathew, head of research for First Capital Research. The island nation has been suffering from a debt repayment crisis which has snowballed into an overall economic crisis forcing the country to implement power cuts amid fuel shortages with foreign exchange reserves declining over 70 per cent since 2020 to a meagre $2.31 billion as of end February. 

Inflation too has spiked to over 16 per cent, the highest in Asia, with food inflation hitting about 25 per cent.