Sri Lanka cabinet approves downgrade to 'low-income country'

Sri Lanka's cabinet has approved a proposal to downgrade the island nation's economic status to a "low-income country" in order to gain access to concessional funds from international organizations, a cabinet spokesman said on Tuesday.

Sri Lanka's economy is in deep slump, contracting by 8.4% year-on-year in the June quarter, one of the steepest quarterly declines on record. According to the World Bank, GDP per capita in 2021 was $3,815, placing the country in the lower-middle economy category. Cabinet spokesman Bandula Gunawardane said the cabinet decided to downgrade the island to the "low-income" category on the World Bank list. "Given the severe financial crisis Sri Lanka is facing, representatives of international organizations have informed us that access to finance would be easier if Sri Lanka was classified as a low-income country," Gunawardane said. South Asia's island of 22 million people is struggling with its worst economic crisis since independence in 1948, caused by COVID-19 hitting its tourism-based economy and cutting remittances from workers abroad, soaring oil prices, populist tax cuts and a seven-month import ban on chemical fertilizers that devastated agriculture last year. The crisis has led to an acute shortage of dollars to pay for imports of food, fuel and medicine, a plunge in the rupee and runaway inflation. Sri Lanka's central bank, which held policy rates steady last week, forecasts a gross domestic product contraction of 8.7% for 2022. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!