Sri Lanka’s construction sector expands 15.5% in 2Q

The all-important constriction sector registered a robust growth of 15.5 percent in the second quarter, accelerating from the first three months, mirroring what the monthly indices repeatedly showed.

The sector, which has a share of 7.6 percent in the broader Sri Lankan economy, has expanded by a solid 15.5 percent in the April-June quarter from the same period last year, the latest gross domestic product (GDP) print for the second quarter showed.

This also marked an acceleration from the 14.2 percent expansion in the first three months of the year. In the first six months, the sector grew by 14.8 percent.

It lost steam from the back half of 2021 and started contracting, first due to the shortage of foreign currency and then by the sharp increase in the interest rates, both of which nearly killed the sector. What exacerbated its shrinkage was the suspension of some projects and complete cessation of the government-funded infrastructure projects, due to the lack of rupee funds.

Meanwhile, the multilateral lenders too allowed the government to shift some of their funds, originally aimed at designated infrastructure projects, into providing relief to the crisis-stricken economy.

However, as seen from the monthly index on the construction sector, the sector activity has been expanding at an accelerated pace, due to the increased availability of these multilateral-funded projects.

Besides, the projects, which are also funded by the bilateral funders, could also add more speed to the sector, as the countries are coming up pledging to resume their funding support after the government brought the official foreign debt restructuring to a completion by the end of June this year.

The sector, which has a wider significance on the broader economy, is one of the largest employers. The sector, which was on the sidelines of hiring, appears to have begun rehiring people as of late, although the extent of hiring hasn’t yet reached the level to offset the job losses and staff who were let go during the crisis years.

The real estate activities, which include dwelling, too registered a growth of 4.2 percent for the quarter, bringing the first six months growth to 3.6 percent over the same period in 2023.  

The cooling of the prices of the construction materials, specially of the ones that are imported and also the softening of the interest rates, are helping the two sectors to gradually return to their former strength, albeit the full potential could be capped due to the less expansionary fiscal policy under the current International Monetary Fund programme, which is excessively focused on cutting budget deficit.