Colombo [Sri Lanka], April 5 : Sri Lanka's economy is estimated to contract again in 2023 before it begins a gradual recovery in 2024, as the country navigates an unprecedented economic crisis, according to Asian Development Bank (ADB).
The crisis-hit economy contracted by 7.8 per cent in 2022 and is forecast to contract by 3 per cent in 2023 as it continues to grapple with the challenge of debt restructuring and balance of payments difficulties.
Reform measures, such as the reversal of the tax it cut in 2019, and the recent approval of the International Monetary Fund's (IMF) loan arrangement will support the country's efforts to stabilize its economy, said the ADB.
Recently, the IMF approved a 48-month arrangement under the Extended Fund Facility of about USD 3 billion to support Sri Lanka's economic policies and reforms.
Sri Lanka's recovery from the crisis now hinges on timely progress on debt relief and implementation of economic reforms.
The needed reforms, according to the development bank's Asian Development Outlook (ADO) April 2023 report, include enhancing domestic resource mobilization, improving the performance of state-owned enterprises, strengthening public financial management, encouraging private sector activities, strengthening anticorruption legislation, building strong institutions, and increasing transparency.
The country entered into the crisis due to various policy missteps, foreign reserves scarcity-led shortages of essentials, power and energy - which it imports, and subsequent inflation, it said.
"Sri Lanka has a long road to recovery, and it will be critical to ensure the poor and vulnerable are protected," said ADB's Deputy Country Director for Sri Lanka Utsav Kumar.
"It is imperative that the country address the root causes of internal and external imbalances, for which an unwavering commitment to reforms is essential," said Kumar.
Established in 1966, ADB said it is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific.
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