COLOMBO: Sri Lanka’s recovery could be stalled by abrupt policy changes after elections later this year even as the economy showed signs of stabilising, the Asian Development Bank warned Friday.
The island nation weathered an unprecedented financial crisis in 2022 that forced a foreign debt default as well as food and fuel shortages that prompted months of unrest.
It secured a $2.9 billion rescue loan from the International Monetary Fund last year, with President Ranil Wickremesinghe hiking taxes and cutting generous subsidies to restore the government’s ruined finances. But the ADB said presidential polls due by October could weaken the commitment to austerity measures.
“Risks to the outlook tend to the downside,” the bank said in its latest forecast on Sri Lanka’s economy. “Among them, the most important is uncertainty associated with the upcoming elections, including any possible impact on fiscal policy and reform implementation.”
Wickremesinghe is seeking re-election and his two principal challengers so far have both opposed his efforts to balance the budget in line with the IMF rescue package. The ADB also warned that any delay in restructuring Sri Lanka’s external debt could also impact prospects.
“Delays in the completion of a debt restructuring agreement and any barriers to passing key legislation could dampen sentiment and derail growth,” it warned.
Sri Lanka had expected a deal with foreign lenders — including China, its single biggest bilateral creditor — by the end of March, but so far no accord has been announced.
The ADB forecast Sri Lanka’s growth at a modest 1.9 percent for 2024 after a contraction of 2.3 percent last year and a record 7.3 shrinkage in 2022.
The World Bank said earlier this month that Sri Lanka’s growth in 2024 would make little difference for many of those still reeling from the crisis.
More than 5.5 million Sri Lankans — or a quarter of the country’s population — were living below the poverty line of $3.65 a day, the World Bank said.
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