COLOMBO: Sri Lanka’s economy grew in the September quarter, the central bank said Saturday, its first expansion since a foreign exchange shortage forced a debt default last year.

The Central Bank of Sri Lanka said the economy had grown by a modest 1.6 percent in the quarter ending September, up from a contraction of 11.5 percent a year earlier.

The latest growth was due to improvements in the transport, services and agriculture sectors, the bank said in a statement.

Despite the positive data, overall figures from the first nine months of the year showed a contraction of 4.9 percent.

The International Monetary Fund has forecast Sri Lanka’s full-year GDP growth in 2023 at negative 3.6 percent.

Sri Lanka grows 1.6% in Q3, first economic expansion in six quarters

The IMF, which on Tuesday released a second tranche of $337 million as part of a four-year, $2.9 billion bailout for the island nation, said Sri Lanka had shown signs of economic stabilisation but was not yet out of the woods.

Its economy had shrunk for nine consecutive quarters since the third quarter of 2021.

The country of 22 million people defaulted on its $46 billion external debt in April last year after running out of foreign exchange to finance imports of food, fuel, medicine and other essentials.

At the height of last year’s economic crisis, civil unrest forced the ouster of then president Gotabaya Rajapaksa, when protesters stormed his residence.

His successor Ranil Wickremesinghe has doubled taxes, withdrawn generous energy subsidies and raised prices of essentials to shore up state revenue.

Sri Lanka announced last month it had struck an “agreement in principle” with its lenders, including China, to restructure nearly $6 billion in bilateral loans, a key prerequisite for sustaining the ongoing IMF programme.