WB forecasts Lankan economy to contract by 4.2%

Sri Lanka’s economy is expected to contract by 4.2 percent in 2023, after an estimated contraction of 9.2 percent in 2022, the World Bank (WB) shared in its latest projections.

According to the latest Global Economic Prospects report that was released this week, the development lender said Sri Lanka is set to witness positive growth only in 2024, where the economy is projected to grow by mere one percent. For the year 2022, the WB estimates that the output in Sri Lanka has fallen by 9.2 percent, as the government ran out of the foreign exchange needed to cover food and fuel imports and to service external debt.

“The forecast for growth in 2023, like the estimate for 2022, has been revised down, owing to ongoing foreign currency shortages, the effects of higher inflation and policy measures designed to restore macroeconomic stability,” the WB said.

Region wise, growth in South Asia is projected to slow to 5.5 percent in 2023, from 6.1 percent the previous year, on slowing external demand and tightening financial conditions, before picking up slightly to 5.8 percent in 2024. 
Growth is revised down over the forecast horizon and is below the region’s 2000-19 average growth of 6.5 percent. 

The WB however said this pace still reflects robust growth in India, the Maldives and Nepal, offsetting the effects of the floods in Pakistan and the economic and political crises in Afghanistan and Sri Lanka.

The economies of the South Asian region continue to be adversely affected by shocks emanating from the Russian Federation’s invasion of Ukraine, higher food and energy prices and by the tightening of global financial conditions as central banks in the region and elsewhere act to fight high inflation. 

However, several economies maintained resilient growth despite the challenging global economic backdrop.
In India, which accounts for three-fourths of the region’s output, growth expanded by 9.7 percent on an annual basis in the first half of fiscal year 2022/23 (April-March), reflecting strong private consumption and fixed investment growth. 

In the Maldives, tourism rebounded robustly in 2022, returning its GDP to its pre-pandemic levels more quickly than previously expected; growth for the year is expected to be 12.4 percent. 

Other economies faced difficult domestic developments and global spillovers. Bangladesh was priced out of global energy markets and unable to meet the energy needs of households and businesses, leading to blackouts and factory closures.