Sri Lanka’s economy expands for a second straight quarter

Sri Lanka’s economy expanded for a second straight quarter as industrial activity picked up pace, buoyed by an International Monetary Fund bailout and lower interest rates.

Gross domestic product rose 4.5% in the three months to December from a year ago, the Statistics Department said Friday. That’s higher than the median forecast of 3.7% growth in a Bloomberg survey of economists, and compares with a print of 1.6% in the July-September period. For the year, the economy clocked a contraction of 2.3%.
The expansion comes as the South Asian nation seeks to win an initial approval for the next tranche of a $3 billion IMF loan program. Authorities are aiming to complete restructuring the nation’s debt by June, a key condition to keep funds from the bailout flowing. Negotiations with dollar bondholders over the terms of recast are underway.

Industrial production expanded 7.9% from a year ago, while services sector rose 2.8%, the data showed.

Lower borrowing costs aided the nation’s recovery. Sri Lanka’s central bank reduced its benchmark rates by a total of 650 basis points in 2023. The monetary authority held rates for the first time in five months in January as inflation started to pick up with the economy’s rebound. While price gains are expected to peak in the coming months, the central bank sees no threat to its 5% target.

Increased inflows from tourism and remittances have also helped Sri Lanka’s turnaround. The nation’s leisure sector is seeing a revival to pre-Covid levels, with earnings from visitor arrivals posting the highest value in four years in January. Its local rupee is at the strongest level since June, gaining 6% against the dollar this year.