The cabinet of Sri Lanka has approved dropping the island nation’s status to the “low income country” status. Bandula Gunawardane, cabinet spokesperson, told reporters that the government wants to access concessional funding from international organizations. An international organization has offered concessional financing to Sri Lanka if it lowers its economic status to a “low income country.” The spokesperson said this on Tuesday. Sri Lanka’s economy is severely declining, shrinking an 8.4 percent annual during the June quarter, one of the most dramatic quarterly drops.
GDP per capita was $3,815 in 2021. This was a place within the lower-middle-income category, as per the World Bank. Cabinet members had voted to lower the island’s status to “low income” on the World Bank list, said the cabinet’s spokesperson Bandula Gunawardane. “Given the serious financial crisis Sri Lanka is facing, representatives of international organizations had informed us that if Sri Lanka was categorized as a low income country access to funding would be easier,” Gunawardane told reporters.
It is a South Asian island of 22 million inhabitants and is facing the worst economic crisis since its independence in 1948. It was brought on by Covid-19, which harmed its tourism-dependent economy, cut remittances to foreign workers, and raised oil prices. In addition, popular tax cuts and seven months of prohibiting imports of chemical fertilizers in the year ravaged the agricultural sector.
The crisis has resulted in an acute dollar shortage covering food, fuel, and medical imports, a sharp drop in the country’s currency and escalating inflation. As a result, the Central Bank of Sri Lanka held its policy rates steady last week, forecasting an 8.7pc GDP decline for 2022.