Sri Lanka Faces Slowest Economic Growth in 17 Years

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COLOMBO — A political crisis in Sri Lanka last year led to the slowest economic expansion in 17 years, the central bank said Friday.

Growth for 2018 was cut from a forecast above 5.0 per cent to about 3.0 per cent because of damage to the economy from a conflict between the president and the prime minister, Central Bank of Sri Lanka governor Indrajith Coomaraswamy said. The economic growth was the lowest since 2001, Coomaraswamy added.

President Maithripala Sirisena sacked Prime Minister Ranil Wickremesinghe in October and dissolved parliament even though he did not have a majority to back the move. The showdown was only ended by the Supreme Court in December when it held that Sirisena’s actions were unconstitutional and illegal.

The bank governor said he expected better growth in 2019 as the outflow of foreign capital had reversed.

“All in all, we are in a better place this year,” he said, warning however that there could be fiscal slippage because the government was likely to offer sweeteners to the people during a presidential election this year.

Coomaraswamy noted that Sri Lanka’s Supreme Court had demonstrated its independence underscoring that key institutions functioned despite the crisis.

“Our systems stood up very well in the last few months,” Coomaraswamy told reporters. “But businessmen have concerns about political stability.”

During the crisis, three international credit rating agencies downgraded the country’s debt, making it more expensive to borrow abroad.

Sri Lanka had to abandon plans to raise loans abroad. An International Monetary Fund program was also suspended, though the government has opened talks to revive the three-year $1.5 billion bail-out which began in 2016.

Coomaraswamy also said the central bank “is doing the paper work” on a yuan swap agreement with the People’s Bank of China equivalent to $1.5 billion, along with a $400 million swap from Reserve Bank of India and another from Qatar as Sri Lanka struggles to repay a record $5.9 billion foreign loan due this year.

The 2018 growth compares with 3.1 per cent in 2017 when the country faced the twin effects of a major drought followed by floods that killed more than 210 people.

The economy contracted by 1.25 per cent in 2001 after Tamil rebels devastated half a dozen aircraft at the country’s international airport dealing a major blow to tourism, a key foreign exchange earner.

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