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COLOMBO: Sri Lanka’s growth is expected to contract by 3% this year, Moody’s Investors Service said on Monday as the country navigates its worst financial crisis in more than seven decades.
Sri Lanka’s financial crunch was caused by a severe drop in its foreign exchange reserves, which left the island nation struggling to pay for essential imports and forced it into a foreign debt default.
Squeezed by rising inflation, currency depreciation and high interest rates, Sri Lanka’s growth is forecast to have shrunk by 8% last year, Moody’s said in a statement issued on March 10 but released to the media on Monday.
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However, growth is expected to rebound in 2024.
Sri Lanka is likely to release its fourth-quarter and full-year growth numbers later this week, its statistics department said.
The country’s efforts to secure a $2.9-billion bailout from the International Monetary Fund (IMF), which is likely to be approved on March 20, is “credit positive”, Moody’s said.
“Progress towards securing the EFF (Extended Fund Facility) program is credit positive because it unlocks external finance which will allow the economy to import essential goods including food, fuel and raw materials needed to sustain recovery and alleviate social challenges,” the statement said.
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But the beleaguered country still needs to renegotiate its debt, which could be a drawn-out process given its diverse set of creditors.
“Protracted negotiations could jeopardize access to external financing and potentially higher losses for private creditors,” Moody’s added.
Sri Lanka aims to announce a debt restructuring strategy in April and step up talks with commercial creditors ahead of an IMF review of a bailout package in six months, its central bank governor told Reuters last Thursday.
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