COLOMBO Sri Lanka's economy contracted 1.6 per cent in the January to March quarter compared to the same period a year earlier, data shows on Tuesday Jun 28 and is expected to shrink even more in the current quarter due to the nation's worst financial crisis in decades.
The island is struggling to pay for essential imports such as food, fuel, fertliser and medicine because of a severe dollar shortage.
The state-owned Census and Statistics Department said inflation, currency devaluation and low foreign exchange reserves were the main causes of the contraction.
Agriculture shrank by 6.8 per cent and industries by 4.7 per cent while services increased by 0.7 per cent compared to the same period a year ago.
The statement said that the shortage of chemical fertilisers had a significant impact on agriculture production, particularly the production of rice.
The fall for the agriculture sector was the steepest since 2015, it said.
Sri Lanka's economy increased by 4 per cent in the same quarter a year ago and saw a full-year growth of 3.3 per cent in 2021, according to data released by the data released in the same quarter a year ago.
The fuel crisis was not as bad earlier this year but manufacturing has been seriously hit, according to Lakshini Fernando, macro-economist at Colombo-based investment firm Asia Securities.
The second quarter's growth could contract by as much as 5 per cent, two analysts told Reuters, given higher inflation and political uncertainty in April and May.
The country is potentially days away from running out of fuel and has not been able to get a fresh shipment to date.
On Sunday, Sri Lanka hiked fuel prices by 12 per cent -- 22 per cent, the second increase in as many months, and may raise power tariffs by 57 per cent, which will add to inflation that is already at a record 45.3 per cent.
A team from the International Monetary Fund IMF arrived in Sri Lanka last week for talks on a potential US $3 billion bailout package. The island is hoping to reach a staff-level agreement by the end of June, but this is unlikely to unlock immediate funds.