Courtesy The Island

Sri Lanka’s economy grew at the slowest pace in 16 years to record a  worse than expected 3.1 percent GDP expansion last year, according to the central bank.

The Central Bank of Sri Lanka had expected the economy to grow at about 5.0 percent in 2017, but a drought and floods affected agriculture and industry had dragged down overall growth.

At least 213 people were killed in the May 2017 rains that triggered over a dozen landslides and flooded 15 of the island’s 25 districts.

“Adverse weather conditions and their spill over effects continued to affect economic activity and the economy surprised to the downside by recording a growth of 3.1 percent,” the bank said in its annual review of 2017.

The previous low was a negative 1.5 percent in 2001 when Tamil Tiger guerrillas launched an audacious attack on the country’s international airport and destroyed six parked aircraft, a move that crippled the tourism industry that year.

However, the industry has fully recovered since the end of the decades-long Tamil separatist war in May 2009. Construction too has expanded rapidly with a building boom across the nation of 21 million people.

Central Bank Governor Indrajit Coomaraswamy said he expected better weather this year and hoped GDP growth to reach about 5.0 percent, slightly more optimistic than the island’s international lenders.

Coomaraswamy said Sri Lanka attract a record $1.37 billion in the foreign direct investment last year and also amassed foreign reserves to an all time high of nearly $10 billion.

It was possible thanks to tighter monetary policy and fiscal reforms introduced since last year. The move stabilised the economy despite shortfalls in agriculture and industry

Sri Lanka had secured a $1.5 billion 36-month bailout from the International Monetary Fund in June 2016 following a balance of payments (BOP) crisis. The IMF has released $760 million of that loan up to the end of last year.

The BOP has improved since the bailout and last year the country recorded a surplus of $2.1 billion in its overall balance of payments after running deficits for two straight years, according to central bank figures.

Despite the surplus and record foreign exchange reserves, the local rupee had come under pressure in the past week. The US dollar which sold at 157 rupees last week had gone up to 159 on Thursday sparking fears of inflation which is currently running at 4.2 percent.

The governor said the bank would intervene if the forex market did not stabilise at a realistic level in the short term.

“If they don’t, we have the firepower to deal with it,” her said referring to the banks externals reserves estimated at $9.98 billion on Thursday.