(Reuters) – Sri Lanka’s economy grew at a slower-than-expected 1.8% in the fourth quarter of the 2021 financial year, taking its full-year growth to 3.7%, data from the government’s statistics department showed on Tuesday.
Lower than expected fourth-quarter results indicate Sri Lanka struggled to emerge from its Delta-variant coronavirus lockdown in the third quarter of 2021, analysts said, pointing out that both industries and agriculture have posted negative growth.
Inflationary pressure, which grew in the last three months of the year, as well as an unexpected tightening of rates by Sri Lanka’s central bank, could be the other contributory factors, they added.
“Only services managed to grow 3.8%, which was largely due to a resurgence of tourism during the last two months of the year,” said Dimantha Mathew, head of research for First Capital Research.
Sri Lanka’s annual growth of 3.7% was also below the central bank’s downwardly revised projection of 4% made in January. The central bank had originally projected growth at 5%.
The island nation has been suffering from a debt repayment crisis which has snowballed into an overall economic crisis forcing the country to implement power cuts amid fuel shortages with foreign exchange reserves declining over 70% since 2020 to a meager $2.31 billion as of the end of February.
The dollar shortage has left the country struggling to meet essential imports of fuel, food and medicine. Inflation too has spiked to over 16%, the highest in Asia, with food inflation hitting about 25%.
“Our projection for the first quarter of 2022 is negative 3.1% growth. The fuel, power cuts, and cooking gas shortages have hit small businesses hard. Over 1000 small restaurants and bakeries have closed islandwide and we will likely see a slowdown of growth with interest rates increasing,” Mathew added.