Sri Lanka’s economic growth is anticipated to slow down in the second half of 2024, with a projected overall growth of 3.2%, according to Bloomberg Intelligence. The research arm of Bloomberg attributes the slowdown to tight fiscal policies and weak consumer sentiment, which are expected to limit the pace of recovery.
Despite these challenges, Sri Lanka’s economy is on the mend, bolstered by the International Monetary Fund (IMF) loan program. Maintaining the IMF’s support is deemed essential for sustaining recovery efforts. Bloomberg noted that Sri Lanka’s foreign reserves are expected to receive a boost with the IMF disbursing $330 million in loans in June and again in the fourth quarter, aiding the purchase of raw materials for production.
Credit demand is also expected to rise as borrowing rates fall, following the central bank’s interest rate cuts of 725 basis points since June 2023. However, Bloomberg warns that tight fiscal policies and cautious consumer behavior may limit the pace of recovery.
On a seasonally adjusted basis, GDP growth is projected to pick up to 0.7% quarter-on-quarter in Q4 2024, compared to 0.5% in Q1. However, unfavorable base effects are expected to slow year-on-year growth, with 2024 GDP estimated to grow by 3.2%, following a contraction of 2.3% in 2023.
Bloomberg also reported that the IMF is satisfied with Sri Lanka’s progress on debt restructuring and meeting program targets, as evidenced by the continued loan disbursements. The next step for the country is finalizing debt-restructuring deals with its dollar bondholders, expected to be completed before the IMF’s next review in the fourth quarter.
However, political uncertainty ahead of the 21 September elections could pose risks to the country’s economic outlook. Should a new government stall ongoing reforms, it could jeopardize the IMF program and potentially hinder the recovery.