Sri Lanka’s output is estimated to have fallen by 9.2 percent in 2022 as the government ran out of the foreign exchange needed to cover food and fuel imports while the rupee plummeted and imports contracted sharply, and to service external debt, the World Bank says.

In its Global Economics Prospects in January 2023, the global financial institution raised concerns about the continuing shortages of food, energy and medical supplies facing Sri Lanka nation while the authorities are implementing a stabilization program.

Stating that the crisis and its repercussions have increased poverty and reversed much of the country’s income gains over the past decade, the World Bank went on to note that tourist arrivals, an important source of foreign exchange, continue to be depressed with international arrivals last October about one-third of their 2019 level.

The World Bank expects Sri Lanka’s output to contract again this year by 4.2 percent. The forecast for 2023 growth has been revised down owing to the ongoing foreign currency shortages, the effects of higher inflation and policy measures designed to restore macroeconomic stability.

The global financial institution, in its outlook for the South Asia, mentioned that the region continues to be adversely affected by spillovers from the Russia’s invasion of Ukraine, rising global rates and weakening growth in key trading partners. 

The regional growth is estimated to have slowed down to 6.1 percent in 2022 and is projected to slow further to 5.5 percent in 2023 – below the projections on global spillovers – before picking up to 5.8 percent in 2024.

According to the World Bank, some economies in the region such as Sri Lanka and Pakistan, the deterioration in economic conditions has led to a substantial rise on poverty. Many households are consuming less nutritious food, and rolling electricity blackouts have become common as fuel has been rationed, it added.

With regard to the soaring food prices in the South Asian Region, especially in Pakistan and Sri Lanka, the World Bank said the situation has increased the incidence of food insecurity in the region. “In Sri Lanka, for example, more than, one-third of the population are food insecure, from less than one-tenth in 2019.”

The World Bank’s latest Global Economic Prospects report has highlighted that the outlook is particularly devastating for many poorest economies where poverty reduction has already ground to a halt.

The report mentions that the World Bank expected global gross domestic product growth of 1.7% in 2023, the slowest pace outside the 2009 and 2020 recessions since 1993. In its previous Global Economic Prospects report in June 2022, the bank had forecast 2023 global growth at 3.0%.

It forecast global growth in 2024 to pick up to 2.7% – below the 2.9% estimate for 2022 – and said average growth for the 2020-2024 period would be under 2% – the slowest five-year pace since 1960.