September 19, Colombo (LNW): The construction sector in Sri Lanka has shown remarkable resilience, recording a significant growth of 15.5 per cent in the second quarter of 2024, signalling a robust rebound from the economic challenges of the past years.
This sector, which constitutes 7.6 per cent of the country’s economy, demonstrated a notable acceleration from the 14.2 per cent growth seen in the first quarter of the year, according to the latest GDP figures.
In the first half of the year, the construction sector expanded by 14.8 per cent, a positive shift following the severe contraction it experienced since the latter half of 2021.
Previously, the sector was hit hard by a foreign currency shortage and a sharp rise in interest rates, leading to a near-collapse.
The suspension of various infrastructure projects, coupled with the complete halt of government-funded initiatives due to a lack of local currency, further exacerbated the decline.
Additionally, multilateral financial institutions had reallocated funds originally earmarked for infrastructure to provide economic relief, further impacting the sector’s progress.
However, the recent growth can be attributed to the increased availability of multilateral-funded projects, which have rejuvenated the sector’s activity.
Bilateral funders have also expressed a renewed commitment to support infrastructure development following the government’s successful foreign debt restructuring completed in June 2024.
This renewed international cooperation is expected to inject further momentum into the sector’s recovery.
The construction sector is pivotal to the broader economy as one of the largest employers. After a prolonged period of stagnation, the sector has cautiously resumed hiring, though current employment levels have yet to fully compensate for the job losses experienced during the downturn.
The real estate market, encompassing residential developments, also reported a growth of 4.2 per cent in the second quarter, contributing to a cumulative growth of 3.6 per cent over the first half of 2024.
Contributing factors to this resurgence include a decline in construction material costs, particularly those imported, and a reduction in interest rates. However, while the sector shows promise, its potential may be constrained by the government’s current fiscal strategy.
Under the International Monetary Fund (IMF) programme, the focus remains on reducing the budget deficit, limiting the scope for expansive fiscal policies that could otherwise accelerate growth in construction and real estate.
