Sri Lanka faces worst decline as debt crisis looms

Sri Lanka on Tuesday, December 15, announced its worst economic slump with 2nd quarter gross domestic product (GDP) plunging 16.3% as international concern grows over its ability to repay foreign debt.

The Department of Census and Statistics said the record decline in the 2nd quarter compared with a slower 1.6% fall in the 1st quarter before the coronavirus pandemic was felt in the island.

Overall, the economy contracted 5.3% in the first 9 months of the year compared with modest 1.9% growth in the corresponding period last year.

The economy suffered a huge setback last year when local jihadists killed 279 people with a string of suicide bombings against 3 hotels and 3 churches and crippled the lucrative tourism industry.

Sri Lanka was emerging from the devastating attacks when the coronavirus pandemic gripped the island in mid-March, forcing nationwide curfews.

“The 2nd quarter GDP estimate has shown an unprecedented fall in real GDP by 16.3%…and it is the largest drop ever recorded in Sri Lanka’s history,” the census department said in a statement.

It said 3rd quarter results showed a modest recovery of 1.5%, but overall the economy recorded a 5.3% contraction for the 9 months ending September.

Sri Lanka has been facing a second wave of infections since early October with the number of cases increasing tenfold to more than 33,000 with 154 deaths.

The grim economic figures came days after S&P Global Ratings downgraded Sri Lanka by one notch to CCC from B as international credit agencies worried over the island’s ability to service its foreign debt.

The New York-based agency said Sri Lanka’s existing funding sources did not appear sufficient to cover its debt servicing needs estimated at just over $4 billion next year.

International agencies have also noted that Sri Lanka’s economy was already weak when the pandemic hit which had made revenue generation even more challenging.

S&P expects Sri Lanka’s economy to shrink by a record 5.3% in calendar 2020.

Sri Lanka’s government has insisted that it will honor its debt commitments. – Rappler.com