An unprecedented economic crisis sparked huge protests in the island nation, culminating last July when a mob stormed the home of then president Gotabaya Rajapaksa, forcing him to flee the country and resign.

Since then a new government has worked to repair Sri Lanka’s battered public finances and secure a sorely needed International Monetary Fund (IMF) bailout.

Last year’s contraction – the biggest in the country’s 75 years of independence – compared with 3.5% growth in 2021 and a 4.6% contraction in 2020 as the coronavirus pandemic hit.

It was “caused by the deepening of the economic crisis … frequent power disruptions, shortages in fuel, raw materials, (and) foreign currency”, Sri Lanka’s census and statistics department said in a statement.

The data showed some improvement in Sri Lanka’s fiscal position with inflation moderating to about 50% in February, down from a record high of 69.8% in September.

President Ranil Wickremesinghe has raised taxes and ended generous subsidies on fuel and electricity to boost government revenue after his predecessor defaulted on Sri Lanka’s US$46 billion foreign debt last year.

The reforms are a precondition of a US$2.9 billion rescue package from the IMF, which Sri Lanka expects to finalise next week.

But the tax and price hikes have been roundly unpopular, triggering protests and industrial stoppages around the country.

About 40 trade unions warned Thursday that they planned a general strike next week if their demands for concessions on the austerity programme were not met.

Wickremesinghe has said Sri Lanka can expect to remain bankrupt until at least 2026 and insisted his government has no option but to implement the reforms demanded by the IMF.