Sri Lanka central bank sees signs of ‘strong recovery’

Signs of bounce-back in the economy but recent surge in virus cases could cause problems
colombo-sri-lanka
Colombo, Sri Lanka

Early evidence suggests the economy is recovering well from the shock due to Covid-19, the Central Bank of Sri Lanka (CBSL) says.

In its ‘recent economic developments’ report, the central bank acknowledges GDP contracted 1.6% in the first quarter of the year, down from 3.7% growth in the same quarter of 2019. It says figures for Q2 have been delayed due to challenges posed by Covid-19, but high-frequency indicators point to a “strong” rebound of economic activity.

Survey data shows improving sentiment, and emergency support measures by the central bank and government have kept credit flowing to the economy, the CBSL says. Growth is expected to recover to around 5% in 2021.

The external sector has also held up reasonably well, the central bank says, despite a drop in tourism due to the coronavirus. Remittance flows recovered unexpectedly over the summer. Foreign exchange reserves remain “adequate” after recent net purchases, and the government has been able to meet its debt obligations, despite rating downgrades.

Sri Lanka has recently seen Covid-19 cases surge, prompting additional containment measures to be imposed in October, which could hamper the economic recovery.

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