by Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka’s economy shrank 8.4% in the June quarter from a year ago, in one of the steepest falls in three months amid fertilizer and fuel shortages during the country’s most severe financial crisis in more than seven. contracts.
The severe dollar shortage, caused by economic mismanagement and the impact of the COVID-19 pandemic, has left residents struggling to pay for essential imports including food, fuel, fertilizer and medicine.
The state’s Census and Statistics Department said agriculture shrank 8.4% in the second quarter and industries 10%, while services declined 2.2% from a year ago.
The government said the shortage of chemical fertilizers during the quarter affected agricultural production, especially the country’s staple rice, while restrictions on fuel imports reduced manufacturing activity.
In the first quarter, the island of 22 million saw its growth shrink by 1.6%. Sri Lanka’s central bank estimates that the economy will shrink by about 8% in 2022.
“This is the second largest contraction we have ever seen. The most recent was when Sri Lanka recorded negative growth of 16% in the second quarter of 2020 due to the COVID-19 pandemic lockdowns,” said Dimantha Mathew, Head of Research at First Capital.
“We expect growth in the third and fourth quarters to also be negative and overall growth to shrink by 10% to 12%. Inflation continued to grow in the third quarter and hurt private sector consumption, which is likely to extend into the fourth quarter.”
Sri Lanka reached a staff-level agreement on a $2.9 billion rescue package with the International Monetary Fund earlier this month, but it will have to restructure its debt with private bondholders and bilateral creditors before getting the payments.
Reuters reported on Thursday that India, this year’s largest aid provider to its southern neighbor, is not planning to provide new financial support in addition to the nearly $4 billion it provided to Sri Lanka in 2022.