Sri Lanka shows signs of recovery but must maintain reform momentum: ADB

The Asian Development Bank’s (ADB) annual flagship economic publication, the Asian Development Outlook (ADO) for April 2024, forecasts moderate growth in Sri Lanka’s economy of 1.9% in 2024 and 2.5% in 2025, following two consecutive years of contraction.

According to the ADB, Sri Lanka is showing signs of recovery, with green shoots emerging in the second half of 2023.

Meanwhile, inflation has decelerated to single digits, foreign exchange reserves continue to build up, and the exchange rate has appreciated. Furthermore, tourist arrivals and remittance inflows continue to show a commendable recovery, while supply conditions have improved.

The ADB’s growth forecast hinges on the continuation of reforms and improved consumer and business sentiment.

The timely completion of external debt restructuring will also support Sri Lanka’s debt sustainability efforts. ‘Sri Lanka has made commendable progress in implementing difficult policy reforms and stabilizing the economy in 2023,’ said ADB Deputy Country Director for Sri Lanka Utsav Kumar.

“We are pleased to see the results of these reforms, with signs of recovery emerging. It is critical that Sri Lanka addresses the impact on the poor and vulnerable and also continues to implement reforms to address the underlying causes of the crisis and lay the foundation for fostering sustainable recovery, building resilience, and reviving growth.”

Addressing vulnerabilities related to poverty amid economic recovery poses a major challenge for the country.

Gains in poverty reduction have been eroded as a result of the COVID-19 pandemic and the subsequent economic crisis.

As the economy stabilizes, the country must ensure that the most affected and vulnerable groups of people are supported, and high poverty incidence and income inequality are addressed.

This calls for appropriate institutional and structural frameworks for an inclusive social protection system with improved targeting.

Creating jobs and fostering sustainable livelihoods would significantly contribute to alleviating poverty.