ADB forecasts SL’s economic growth to dip to 2.4-pct in 2022

Asian Development Bank

The Asian Development Bank’s (ADB) annual flagship economic publication forecasts a muted recovery from the coronavirus disease (COVID19) pandemic as Sri Lanka’s economy grapples with macroeconomic challenges arising from high debt, low foreign reserves, and inflationary pressures.

ADB forecasts Sri Lanka’s economic growth to dip to 2.4% in 2022 and improve marginally to 2.5% in 2023. The Asian Development Outlook (ADO) 2022 observes that even as the Omicron variant of COVID-19 subsides, the country is facing several headwinds.

Rising food, fuel and commodity prices, higher import prices, supply chain disruptions, shortages stemming from the foreign exchange squeeze, demand side pressures, and exchange rate depreciation will drive inflation higher in 2022.

Inflationary pressures are expected to moderate in 2023 as global prices fall and supply constraints ease. “A strong vaccination drive helped economic activity recover from the impact of multiple COVID-19 waves, with tourism, one of the worst hit sectors, gaining strength at the turn of the year,” said ADB Regional Economic Advisor for South Asia Rana Hasan. “At the same time, strong growth is being held back by Sri Lanka’s debt overhang, large external financing requirements, energy shortages, and high inflation.

Immediate measures to restore macroeconomic stability and debt sustainability are crucial for recovery to gain traction.” Underlying macroeconomic weaknesses, the pandemic’s lingering impacts, energy shortages and external shocks pose downside risks to the economic outlook. In the absence of access to sustained balance of payment financing, foreign exchange reserves will continue to be limited, and external sector vulnerabilities are likely to persist.

The implications of the Russian invasion of Ukraine will be seen through higher oil and food prices as well as reduced tourism and exports earnings.

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