Sri Lanka economy to contract by 6.7% this year: World Bank

Hit by COVID-19-related disruptions, Sri Lanka’s economy is projected to shrink by 6.7 percent this year, recording the third highest economic contraction among the South Asian region economies, after the Maldives (-19.5) and India (-9.6), the latest World Bank report titled ‘South Asia Economic Focus’, released this morning said.

“The COVID-19 crisis has substantially clouded the outlook and exacerbated an already challenging macroeconomic situation. The economy is expected to contract by 6.7 percent in 2020, with all key drivers of demand affected: exports, private consumption and investment,” the report stated.

The World Bank in its ‘Global Economic Prospects’ report in June forecast a 3.2 percent GDP contraction for Sri Lanka, this year.

Sri Lanka grew 2.3 percent in 2019, lower than expected at the beginning of the year, largely due to the April terror attacks. 

Sri Lanka’s fiscal deficit is projected to expand further to over 11 percent of GDP in 2020, driving an increase in debt levels.

Meanwhile, the World Bank forecasts Sri Lanka’s fiscal deficit to widen sharply to 11.1 percent this year, from 6.8 percent in 2019, the debt-to-GDP ratio to exceed 100 percent from 86.8 percent in 2019. 

The World Bank also expects Sri Lanka’s debt-to-GDP levels to remain elevated over 100 percent levels in 2021 and 2022 also.

Due to the decline in demand, Sri Lanka’s inflation is expected to remain below 5 percent in 2020 and 2021.
Meanwhile, the report said South Asia is set to plunge into its worst-ever recession as the devastating impacts of COVID-19 on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions of South Asians into extreme poverty.

The report forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years.