Sri Lanka’s economy shrank the most in two years amid a debt crisis that triggered a default and widespread protests that brought the nation to a standstill leading to the ouster of the president.
(Bloomberg) — Sri Lanka’s economy shrank the most in two years amid a debt crisis that triggered a default and widespread protests that brought the nation to a standstill leading to the ouster of the president.
Gross domestic product fell 8.4% in the three months to June from a year ago, according to data released by the Statistics Department Wednesday. That’s the slowest reading since the corresponding quarter of 2020 and compares with an estimate of a 10% contraction in a Bloomberg survey of economists. Sri Lanka’s economy contracted 1.6% in the January-March quarter.
Sri Lanka’s $81 billion economy collapsed after fuel supplies ran dry because of the financial crisis, spurring inflation that has quickened to a fresh high of 64.3% in August and sending the policy rate more than doubling this year to 15.5% from 6% in end-2021.
The economic meltdown, the most dire in its independent history, spiraled into political chaos. The nation’s currency has plunged more than 40% this year and stocks are down almost 20%.
Earlier this month, authorities sealed an agreement with the International Monetary Fund for a $2.9 billion loan that will be crucial to rebuild reserves, unlock more funding and start a debt recast. Sri Lanka is also preparing for talks with India, Japan and China, its largest bilateral creditor, on restructuring nearly $13 billion worth of debt.
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