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Tuesday, February 7, 2023

No end in sight for Sri Lanka’s crisis as unemployment rate climbs, govt cuts budget spending

The central bank’s monthly business surveys, which are more forward-looking indicators, revealed a consistent cut in jobs, in both the manufacturing and services sectors, as a result of hiring freezes, layoffs, and retirements. Photograph:(Reuters)

The latest official data showed the island nation’s unemployment rate rose to 5 per cent by the end of September last year, during which the economy contracted by 12 per cent

As Sri Lanka battles its worst economic crisis in 70 years, the jobless rate climbed, stoking massive social and political concerns. The latest official data showed the island nation’s unemployment rate rose to 5 per cent by the end of September last year, during which the economy contracted by 12 per cent.

The jobless rate was 4.6 per cent in the prior quarter ending June.

The central bank’s monthly business surveys, which are more forward-looking indicators, revealed a consistent cut in jobs, in both the manufacturing and services sectors, as a result of hiring freezes, layoffs, and retirements.

In what will complicate matters further for policymakers, data showed labour participation in Sri Lanka continues to sink. The exodus of people from the country escaping the miserable living conditions have added to the issues facing businesses in recruiting top talent.

Sri Lanka lost well over 300,000 of its workforce in 2022 to overseas employment, the worst for any year on record. The island nation has also cut its recurrent budget spending by 6 per cent in 2023 to manage its finances.

Sri Lanka battles its worst economic crisis in 70 years

The cabinet also approved a plan to delay the salaries of government employees to manage its already-stretched and highly-indebted public finances. A cut in public spending is a requirement for an IMF bailout, which Lankan President Ranil Wickremesinghe said was the only way out for the crisis-stricken country.

It comes at a time when the most vulnerable in Sri Lanka fear they won’t be able to make it through the food security crisis caused by the country’s rising cost of living.

The government has been struggling to manage the country’s worst economic crisis since independence in 1948 and balance it with the conditions for an IMF bailout, which the island nation desperately needs.

One of the conditions for the IMF bailout is that Sri Lanka convinces India and China to reduce the debt it owes. A latest report from Reuters news agency, quoting sources, showed India has written to the IMF backing Sri Lanka’s debt restructuring plan.

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