By Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka's economy grew 1.6% in the July-September quarter, official data showed on Friday, as the country recovers from the worst financial crisis in more than seven decades following a record fall in foreign reserves.
The expansion was the first since late 2021, with the rebound driven by a lower base, weaker inflation, a stronger currency and lower interest rates, a statement from Sri Lanka's Ministry of Census and Statistics said.
Sri Lanka's agriculture sector grew 3% year-on-year, with industrial production increasing 0.3% while the services sector increased 1.3%, the ministry said.
Aided by a $2.9 billion IMF rescue package in March, Sri Lanka's economy began a painful growth path. It secured a second tranche of $337 million this week, despite the IMF warning that the island is not yet out of the woods.
Sri Lanka's economy is expected to contract by 3.6% this year after shrinking by 7.8% in 2022, according to the IMF.
Next year, full-year growth will return, with Sri Lanka's economy expected to expand by 1.8%. However, ambitious reforms lie ahead, such as higher taxes, reforms of loss-making state-owned enterprises and a complete restructuring of external debt.
Sri Lanka's central bank has cut interest rates by 650 basis points since June to boost growth, while inflation fell to 3.4% in November from a peak of 70% last September.
“The economic recovery really took hold in the last three months of 2023, with a stronger recovery in the services and manufacturing segments,” said Dimantha Mathew, head of research at First Capital. “This means growth could be as high as 7-8% in the fourth quarter,” Mathew added.
(Reporting by Uditha Jayasinghe; Editing by Clarence Fernandez, Angus MacSwan and Alexander Smith)
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