Sri Lanka quarterly growth slows to near 4-year low on political crisis

Reuters: Sri Lanka's last quarter economic growth slowed to a nearly four-year low, Government data showed on Tuesday, as a 51-day political crisis took a toll on the industrial sector. 

Colombo posted 1.8% growth in the fourth quarter of 2018, slowing from 3.45% the previous three-month period, its slowest pace since early 2014. 

The industrial sector, accounting for more than a quarter of the economy, contracted 3.6% in the fourth quarter of 2018, compared to 3.1% growth the previous period. 



The sluggish quarterly growth dragged the island's annual expansion to a 17-year low of 3.2%, compared to 3.4% the previous year. 

Sri Lanka faced a political crisis after President Maithripala Sirisena abruptly sacked his Prime Minister Ranil Wickremesinghe and dissolved Parliament. That was later ruled unconstitutional, and Wickremesinghe was reinstated. 

The crisis created panic and uncertainty among investors, who dumped Sri Lankan Government bonds and other assets, sending the rupee currency to record lows. 

“Most of the people say the manufacturing orders had an impact, both domestically and on the export side, with the huge currency depreciation mainly due to the political turmoil,” said First Capital Holdings Research Head Dimantha Mathew. 

The weak economic data may have a big negative impact on markets and businesses in the short-term, he added. 

During the political crisis, all three major rating agencies downgraded Sri Lanka. 

Foreign bondholders and share investors sold a net Rs. 66.6 billion ($ 373.32 million), while the International Monetary Fund suspended discussion to disperse the fifth tranche of a $ 1.5 billion loan. 

Finance Minister Mangala Samaraweera expects growth to pick up this year to a pace of 3.5%. 

Economists say tight monetary and fiscal policies, plus intermittent floods and drought, also contributed to lower growth last year. The rupee fell 16% in 2018 mainly due to foreign outflows from Sri Lankan securities.