Main reasons for SL economy’s collapse in 2022

March, 16, 2023

The gradual recovery in economic activities which was observed in the year of 2021 when compared to the year 2020, along with the reducing of the COVID-19 pandemic, reversed the direction of performance of many economic activities and resulted in contraction of the whole economy. This is mainly caused by the deepening of the economic crisis and youth and social unrest began in early part of the year 2022. In addition, frequent power disruptions, shortages in fuel, raw materials, foreign currency which affected in making supply chain disruptions, amidst price escalations in both domestic and global markets, affected adversely to the whole production process of agriculture, industry and services.

The Agriculture sector recorded a contraction during 2022, owing to shortages in agricultural inputs, particularly fertilizer and agrochemicals, increased cost of inputs as well as fuel shortages. As well the industry sector as a whole reported significant contraction due to the subdued performance in manufacturing and construction activities. Scarcity of raw materials, high input prices, import restrictions, prolonged power disruptions, fuel shortage, foreign currency shortage, deterioration of purchasing power parity of consumers have been caused to this contraction. Meanwhile, the services sector witnessed a marginal shrinkage in the year of 2022 along with the contraction in the agriculture and industrial activities.

During the year 2022, the depreciation of the Sri Lankan Rupee at a notable rate, increase of interest rate to a high rate, supply side disruptions happened in both locally and globally, administrative price adjustments have been caused to record a high inflation domestically and as a whole the Sri Lankan economy reported a slower performance during the year 2022.

The Department of Census and Statistics said this presenting the National Accounts Estimates for the fourth quarter of 2022 and the year 2022.