Sri Lankan economy bounces back as inflation dips

Sri Lanka on Monday hailed data showing the economy grew far more than expected in the first quarter, as the country continued its recovery from a crippling foreign exchange crisis. The 5.3 percent expansion in January-March marked an increase from the previous three months and was a huge improvement on the 10.7 percent contraction in the same quarter last year. It also topped forecasts of 4.0 percent in a survey by Bloomberg News.

Deputy finance minister Ranjith Siyambalapitiya said the government expected overall annual growth in 2024 to be about 2.2 percent. "It is remarkable that we were able to achieve positive growth two years after facing the worst economic crisis ever," he said in a statement. Official figures showed a sharp recovery in the industrial sector, with an expansion of 11.8 percent in the first quarter, compared with a 24.3 percent contraction in January-March 2023.

The construction sector also showed improvement, as inflation came off a peak of 70 percent in September 2022 to 0.9 percent in May. Last week, the International Monetary Fund released $336 million as part of a four-year $2.9 billion bailout for Sri Lanka, which defaulted on its $46 billion foreign debt in April 2022.

The peak of the economic crisis in 2022 saw months of food, fuel and medicine shortages after the island ran out of foreign exchange to pay for imports. The resulting civil unrest forced the ouster of then-president Gotabaya Rajapaksa, when protesters stormed his residence.

His successor Ranil Wickremesinghe has doubled taxes, withdrawn generous energy subsidies and raised prices of essentials to shore up state revenue.