The economic future of Sri Lanka remains uncertain, as the country navigates debt restructuring negotiations with private creditors and implements structural reforms to boost growth potential, according to the World Bank’s latest Global Economic Prospects report.
The report highlighted that the economy contracted by an estimated 3.8 percent in 2023, and credit to the private sector remained subdued throughout the year, adversely affecting economic activity.
With weaker demand, consumer price inflation declined, and the central bank began reducing policy rates from mid-2023. “Progress was also made in sovereign debt restructuring, as the authorities reached agreements with major official creditors, including China and the Paris Club, as well as the implementation of a domestic debt optimization plan,” the report stated.
However, the report warned that interest payments are projected to be large in countries with elevated debt levels, including Sri Lanka. “External and fiscal financing needs are elevated in several SAR economies, including Sri Lanka, increasing vulnerabilities to financial market disruptions,” the report concluded.
This situation underscores the importance of prudent fiscal management and the implementation of structural reforms to ensure sustainable economic growth in Sri Lanka.