Sri Lanka’s economy grew 5.5% year-on-year in the third quarter, official data showed on Tuesday, as the country recorded a strong recovery from its worst financial crisis in decades.
Sri Lanka’s agricultural sector grew 3% between July and September from a year earlier, industrial production expanded 10.8% and services grew 2.6%, Sri Lanka’s Department of Statistics and Census said in a statement.
Hit by a severe dollar shortage, the economy went into free fall in 2022, contracting 7.3% as it grappled with soaring inflation, a much weaker currency and a historic foreign debt default. The economy contracted 2.3% last year.
But it has been steadily recovering after securing a four-year, $2.9 billion bailout from the International Monetary Fund (IMF) in March last year, which new President Anura Kumara Dissanayake has pledged to carry forward.
Sri Lanka bondholders approve $12.55 billion debt reform
“The budget we expect in February 2025 would be the key catalyst to ensure the smooth continuation of reforms, and would be what markets would watch closely to gain confidence in the sustainability of the recovery,” said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.
Sri Lanka is on track to achieve 4.5% to 5% growth after a two-year gap, the central bank said last month after revising upwards its initial 3% forecast for 2024.
Reductions in electricity tariffs and fuel prices, as well as the appreciation of the rupee, have helped reduce inflation to the lowest point in nine years, falling to -2.1% in November.
Taking advantage of low inflation, Sri Lanka’s central bank set a new single policy rate of 8% last month, easing monetary settings below previously used benchmarks and setting the stage for a sustained recovery from the crisis.
Sri Lankan bondholders approved the government’s proposal to restructure its $12.55 billion in international bonds, a key step toward finalizing debt reform.