Economy growing again

It is a huge relief to hear that the nation’s economy returned to the growth trajectory during the third quarter of this year after six consecutive quarters of negative economic growth. The economy grew by 1.6% over the last three-month period compared to the corresponding period in 2022. The positive news comes in the backdrop of the IMF releasing the $ 337 million, second tranche last week as part of the $ 2.9 billion bailout which was secured last March.

It is heartening to see that agricultural activities which were severely affected from the fertiliser ban by former President Gotabaya have demonstrated a considerable turnaround as reflected by their pretty high growth rates – Growing of cereals (33.2%) and Growing of rice (23.2%). Reflecting the recovery of the tourism industry, accommodation, food and beverage serving activities had grown by 34.9%. Nevertheless, the industrial activities had expanded only marginally by 0.3% while important industrial sub-sectors in terms of employment and overall contribution to the economy such as construction and manufacturing of textiles, wearing apparel, leather and other related products had recorded negative growth rates of 5.5% and 10.1% respectively.

Meanwhile, the decline in inflation has provided a great deal of stability to the economy, as the Central Bank’s tight monetary policy was successful in bringing down the rate of inflation to 3.4% last November from a historical high of 70% in September 2022 and Governor Nandalal Weerasinghe’s efforts to tackle inflation have been praised internationally.

The drop in inflation has given the space for the Monetary Authority to cut interest rates, and the benign interest rates would give an impetus to the economic activities over the coming months. However, the IMF has pointed out that the latest rate cut has raised inflation risks, and there is limited room for further loosening in the short-term. The Central Bank has brought down interest rates by 650 basis points since June in conjunction with the decline in inflation. Historically, the Monetary Authority does not have a good track record in terms of maintaining price stability, nevertheless, with the new Central Bank Act giving more autonomy, it is hoped that things would change for the better.

Our economy is not out of the woods yet, but the required foundation has been laid down for a recovery. The contraction of the economy from 2020 onwards together with the galloping inflation during 2022 led to a substantial decline in the socio-economic conditions of the country. The per-capita income in 2022 was recorded as $ 3,474, which represents a significant decline from $ 4,400 in 2017.

President Wickremesinghe took over the Government when the nation was undergoing a painful time at the height of the economic crisis last year, characterised by hours-long power cuts and an acute shortage of essentials. Providing the required political leadership to turnaround a crisis-hit economy is nothing new to him. When he became Premier in 2001, the economy had suffered a negative growth rate (-1.5%) for the first time in the post-independent history. Four months before his victory, Lloyds of London had declared Sri Lanka as a war-risk zone; hence, ships were reluctant to enter Sri Lanka. At the end of his two-year government in 2004, the economic growth rate rose to 5.9% in 2003, following an expansion of 4% in 2002. Regaining Sri Lanka – the blueprint for economic development presented by his Government – addressed the fundamental structural issues of the economy and if the reforms proposed by that strategic plan had been implemented, our economy would not have suffered the predicament it underwent in 2022.

Therefore, it is incumbent upon the citizens of the country to understand the value of staying the course without undertaking risky experiments. A breakdown of the IMF program would spell disaster for Sri Lanka, and there would be no second chance to save the economy as pointed out by Governor Weerasinghe.