global economy

Sri Lanka faces worst decline as debt crisis looms

Agence France-Presse, Agence France-Presse
Sri Lanka faces worst decline as debt crisis looms

VENDOR. A street vendor drives his motorcycle along a road in Colombo, Sri Lanka, on December 15, 2020.

Photo by Lakruwan Wanniarachchi/AFP

The grim economic figures come as international credit agencies worry over Sri Lanka's ability to service its foreign debt

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

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