Sri Lanka economy 'in recession'

Sri Lankans were hoping for an improvement

By Amal Jayasinghe in Colombo

Sri Lanka's central bank has announced that the economy in recession following the worst performance since independence from Britain 53 years ago.

Third quarter figures for GDP released by the central bank show that the economy has contracted by 3.7%.

Other figures bear out the recession fears:

• Growth in the second quarter was positive - but at a dismal 0.4%.
• Overall economic growth in the first nine months of the year was worse than expected at -0.7%.
• The government estimates that for the year 2001 as a whole, growth will be -0.5%.

Junior Finance Minister Bandula Gunawardena says there is worse news to come in the New Year.

Debt problems

For the first time, debt servicing will exceed the government's total anticipated revenue by about $217m dollars.

He has warned that the government will have no money left for development and social services after servicing the huge debt accumulated by the previous government which was voted out of office earlier this month.

Mr Gunawardena says it would be suicide to resort to an Argentina-style freeze on foreign loan repayments or even to ask for a rescheduling of the debt.

He says such moves would seriously damage the country's financial credibility.

He says that the new government will embark on a major economic reform programme next year which means more belt tightening for Sri Lankans who voted the new government on a promise of economic prosperity.

The economy has been badly affected by the country's civil war, which has been going on for nearly 20 years.