Sri Lanka’s economy shrank 7.8% in 2022 from the previous year, government data showed on Wednesday, as the country struggled with its worst financial crisis in more than seven decades.

The island’s fourth-quarter GDP contracted 12.4%, according to the figures.Sri Lanka’s growth is expected to shrink by 3% this year, Moody’s Investors Service said on Monday but growth is expected to rebound in 2024.

Economic mismanagement coupled with the impact of the COVID-19 pandemic left Sri Lanka severely short of dollars for essential imports at the start of last year tipping the country into the worst financial crisis since Independence from the British in 1948.

Sri Lanka is waiting for a US $2.9 billion bailout program from the International Monetary Fund (IMF) to be finalised on March 20.

“These numbers are broadly in line with expectations. In the last three months of 2022 Sri Lanka was hit by very high inflation, fuel shortages and high interest rates,” said Sanjeewa Fernando, Senior Vice President Research at Asia Securities.

“For the rest of this year, with IMF funds expected, the central bank should be able to keep the currency strengthened, eventually reduce interest rates, and continue to see inflation ease.”

The state-run Census and Statistics Department said that the agriculture sector shrank 4.6%, while industries contracted 16%, and services dropped 2%, from a year earlier.

The gradual recovery in economic activities which was observed in the year of 2021 when compared to the year 2020, along with the reducing of the COVID-19 pandemic, reversed the direction of performance of many economic activities and resulted in contraction of the whole economy. 

This was mainly caused by the deepening of the economic crisis and youth and social unrest began in early part of the year 2022. 

In addition, frequent power disruptions, shortages in fuel, raw materials, foreign currency which affected in making supply chain disruptions, amidst price escalations in both domestic and global markets, affected adversely to the whole production process of agriculture, industry and services.

The Agriculture sector recorded a contraction during 2022, owing to shortages in agricultural inputs, particularly fertilizer and agrochemicals, increased cost of inputs as well as fuel shortages.

 As well the industry sector as a whole reported significant contraction due to the subdued performance in manufacturing and construction activities. 

Scarcity of raw materials, high input prices, import restrictions, prolonged power disruptions, fuel shortage, foreign currency shortage, deterioration of purchasing power parity of consumers have been caused to this contraction. 

Meanwhile, the services sector witnessed a marginal shrinkage in the year of 2022 along with the contraction in the agriculture and industrial activities.

During the year 2022, the depreciation of the Sri Lankan Rupee at a notable rate, increase of interest rate to a high rate, supply side disruptions happened in both locally and globally, administrative price adjustments have been caused to record a high inflation domestically and as a whole the Sri Lankan economy reported a slower performance during the year 2022.

The Government of Japan has provided a new contribution of over US$1.8 million to UNICEF’s emergency response for the most vulnerable children in Sri Lanka.

The new contribution will enable over 600,000 children to access clean water, good hygiene and sanitation, and treatment for malnutrition.

Sri Lanka faces an economic crisis which is disproportionately affecting the poor and vulnerable households, with dire implications for children, the UN organization said.

Access to a nutritious diet has emerged as a potent threat to children. The practice of proper hygiene through handwashing with soap has been identified as inconsistent especially among the most vulnerable, further compounding the situation of children.

MIZUKOSHI Hideaki, Ambassador of Japan to Sri Lanka, said, “the Government of Japan has decided to provide additional humanitarian assistance to Sri Lanka in this critical situation. 

With this latest contribution, the total amount of assistance provided by the Government of Japan through UNICEF has exceeded US$ 3.8 million since the beginning of the economic crisis last year. Japan continues to stand by and support Sri Lanka.”

UNICEF has remained agile in its work to address the needs of children in Sri Lanka and ensuring that the most vulnerable and their families are cushioned from the worst effects of poverty, COVID-19 and now the economic crisis.

“The Government of Japan has made a significant contribution to support the efforts of UNICEF collaborating with the Government of Sri Lanka in responding to both the long- and short-term needs of children”, said Christian Skoog, UNICEF Sri Lanka Representative. “UNICEF appreciates and relies on such contributions for its work for children”.

 Treat 9,000 children with severe acute malnutrition through provision of therapeutic food and support access for children with complications to effective care in 97 hospitals where in-patient treatment is prioritized.

It will  Procure and distribute multiple micronutrient powders for 200,000 children under two years to address deficiencies. 

 400,000 children and their parents/caretaker are to be reached with accurate information on proper sanitation and hygiene information.

It will support 100,000 people mainly women through provision of safe and adequate water supply, sanitation, and hygiene facilities in identified Maternal and Child Health clinics.

This contribution is in line with the Japanese Government’s commitment that people live in dignity, free from want and fear through the provision of basic social services for the most vulnerable populations, including access to essential lifesaving WASH and nutrition services.

According to the exchange rate notes issued by commercial banks today (16), the buying price and selling price of an American dollar have increased further.

Accordingly, the selling price of one American dollar in most commercial banks is 350 rupees or above.

1. Increase of Central Bank holdings of Treasury Bills (money printing) under Governor Weerasinghe registers a massive Rs.995 bn in 11 months: up from Rs.1,730 bn on 5Apr22 to Rs.2,725 bn by 15Mar23: a staggering Rs.121 bn “printed” on 15Mar23 alone.
2. Several Tamil politicians and civil society representatives seek audience with the Mahanayake Theras on the full implementation of the 13th Amendment: group to be led by TMTK MP C V Wigneswaran.
3. Govt Printer Gangani Liyanage says the printing of ballot papers for the postal voting of the upcoming LG election is stopped as required funds are yet to be received from the Treasury: says she intends to inform this in writing to the Elections Commission.
4. LKR dips further from 344.68 to 346.33 against the USD: so far, the LKR has plummeted by Rs.20.81 (6.4%) in just 6 days in spite of CB Governor Weerasinghe’s remarks that the LKR will strengthen: “grey market” quotes LKR at over Rs.375.00 per USD: many analysts expect the LKR to weaken further.
5. GMOA Secretary Dr Haritha Aluthge says the GMOA has received a letter from the Presidential Secretariat that the President will present the Personal Income Tax proposals by Trade Unions to the IMF at the 1st review of the EFF.
6. Western Province Senior Deputy Inspector General Deshabandu Tennakoon to be appointed as the 36th Inspector General of Police: current IGP C D Wickramaratne due to retire on 25th March.
7. National Institute of Mental Health Director Dr Rohan Ratnayake says a suicide takes place in Sri Lanka once every 4 hours: also says 2,833 men & 574 women committed suicide in 2022: further says the number of suicides amongst apparel factory employees has increased.
8. SLPP rebel MP and former SEC Chairman Dr Nalaka Godahewa says the week long appreciation of the LKR was a “joke”: queries how a bankrupt country which is in a serious contraction could have a currency that is appreciating.
9. CB Governor Nandalal Weerasinghe rejects appeal by Vehicle Importers Association to grant permission to resume vehicle imports: vehicle imports have been restricted since March 2020 due to the forex shortage, but the CB Governor has claimed recently that large amounts of Forex has been received by the Central Bank.
10. Sri Lanka suspended from voting during FIFA elections when nearly 2,000 delegates including top football executives from the world football governing body met in Kigali for the long-awaited 73rd FIFA Congress.

Showers or thundershowers will occur at a few places in Western, Sabaragamuwa and North-western provinces and in Galle and Matara districts during the afternoon or night.

Several spells of light showers may occur in the coastal areas of the Batticaloa, Ampara and Hambanthota districts.

General public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.

The Chinese Embassy, yesterday (15), handed over a donation of material to the Government of Sri Lanka as a donation for the production of police uniforms.

The donation was made by the Ambassador of China to Sri Lanka, H.E. Qi Zhenhong, to the Minister of Public Security, Mr Tiran Alles. This donation was made at the Presidential Secretariat in the presence of President Ranil Wickremesinghe.

Chief of Staff and Senior Advisor to the President on National Security, Mr Sagala Ratnayake and Secretary to the President, Mr Saman Ekanayake, were also present at the event.

Samagi Jana Balawega media chief, Member of Parliament SM Marikkar requests the government to re-implement the tax policy imposed by the then Finance Minister Mangala Samaraweera in 2019.

Marikkar said this while addressing a press conference held in Colombo yesterday (16).

Colombo (LNW): Senior Deputy Inspector General (SDIG) of Police Deshabandu Tennakoon has been nominated by President Wickremesinghe to be appointed as the 36th Inspector General of Police (IGP) of Sri Lanka Police, top sources divulged.

His promotion as the new IGP of Sri Lanka Police will come in filling the post to be vacant after the retirement of his predecessor Chandana Wickramaratne on March 20, 2023, according to sources.

• Bond levels on the shorter-end look good to buy: StanChart
• IMF to decide on much-needed $2.9 billion loan next week

By Malavika Kaur Makol

Bloomberg: Foreign investors are likely to raise holdings of Sri Lanka government bonds, betting that a successful deal with the International Monetary Fund next week would unlock more funding to stabilize the nation’s finances, according to Standard Chartered Plc.

“The moment we have clarity on the debts, the restructuring process, the interest rates will fall and investors will want to time it right and get into the bond space pretty early,” said Bingumal Thewarathanthri, the chief executive officer for the UK bank in Sri Lanka. 

Investors are expected to pile into local bonds, lured by one of the most attractive yields among emerging Asian nations, he said.  

The IMF plans to decide on the $2.9 billion funding package next week after China earlier this month gave assurances that it will support the nation’s debt restructuring, clearing the biggest hurdle for approval. The nation grappled with soaring costs, depleted funds and severe supply shortages for much of 2022 as it pursued a loan program with the IMF after a debt default in May. 

“You can’t wait until the debt restructuring is over, after that the price points will be very different,” said Thewarathanthri. Current bond levels on the shorter-end, mainly on t-bills look good to buy. If you’re looking at taking a stake in any of the larger corporates or banks, “this is the time,” he said. Sri Lanka’s one-year treasury bill yields about 26%, compared with around 7% for two-year notes in India and 6.38% for similar-maturity Indonesian bonds. 

In efforts to secure the bailout package, Sri Lanka repurposed funds, tightened its belt and raised interest rates to the most since 2001. The nation fell into a deeper recession last quarter as borrowing costs at a two-decade high to rein in inflation took their toll on the $89 billion economy.