In 2020, SL faced deepest recession since 1948 – CBSL

Prof. W D Lakshman, the Governor of the Central Bank of Sri Lanka, presenting the Annual Report 2020 to PM and Finance Minister Mahinda Rajapaksa

The Sri Lankan economy had contracted by 3.6 per cent in real terms in 2020, recording the deepest recession since Independence, the Central Bank said yesterday issuing a press release on the publication of its annual report. Mobility restrictions and other containment measures imposed locally and internationally, with a view to preventing the spread of COVID-19, hampered real economic activity across all sectors, CBSL said.

“Alongside the global economic downturn induced by the pandemic, the Sri Lankan economy contracted by 3.6 per cent in real terms in 2020, recording the deepest recession since independence.

“The sharp contraction observed in Industry activities during the year was driven by the significant slowdown in construction and manufacturing activities. Services activities also registered a notable contraction due to the pandemic driven deceleration in transportation, other personal services, and accommodation, food and beverage services. The Agriculture sector, too, registered a contraction during the year as the impact of the pandemic outweighed the positive effects of timely policy support and favourable weather conditions.”

However the drop in merchandise exports due to the mobility restrictions and lockdown measures was swiftly overcome, demonstrating the resilience of Sri Lankan exporters. Accordingly, export earnings rebounded within a relatively short span of time to reach pre-pandemic levels. Measures to curtail non-essential imports, together with the significantly low global petroleum prices, helped reduce the import expenditure in 2020, resulting in a notable improvement in the trade deficit.

“Tourism sector was severely affected by global travel restrictions. Foreign inflows, in terms of trade in services relating to the Information Technology and Business Process Outsourcing (IT/BPO) sector, recorded a significant improvement, supported by the surge in novel work arrangements amidst the pandemic. Workers’ remittances recorded a notable recovery during 2020, despite the decline witnessed at the onset of the pandemic. With these developments and policy induced adjustments, the external current account deficit improved to 1.3 per cent of GDP in 2020 from 2.2 per cent of GDP in 2019.”