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Sri Lanka Crisis: Inflation Rises To 29.8% In April

Sri Lanka’s overall inflation surged to nearly 30% in April from 18.7% in March as the country faces its worst economic crisis.

Debt-ridden Sri Lanka’s overall inflation surged to nearly 30 per cent in April from 18.7 per cent recorded in March, according to the official figures, as the island nation grapples with its worst economic crisis in decades.

Sri Lanka is in the grip of an unprecedented economic turmoil since its independence from Britain in 1948. The crisis is caused in part by a lack of foreign currency, which has meant that the country cannot afford to pay for imports of staple foods and fuel, leading to acute shortages and very high prices.

Months of lengthy blackouts and acute shortages of food, fuel and pharmaceuticals have triggered widespread protests calling for the government's resignation.

According to the data published by the government’s Census and Statistics Office, the overall inflation hit 29.8 per cent in April from 18.7 per cent recorded in March.

The food inflation increased from 30.21 per cent in March to 46.6 per cent in April. Most food items have recorded price increases.

The government’s decision to float the rupee in March after it ran out of dollars to defend a peg has depreciated the currency by over 60 per cent. This has had a spiraling effect on all prices of essentials.

Sri Lanka needs at least USD 4 billion to tide over its mounting economic woes, and talks with international institutions such as the World Bank as well as countries like China and Japan for financial assistance have been going on.

The country has run out of foreign currency to import badly-needed essential goods.

Last month, the Sri Lankan government said it would temporarily default on USD 35.5 billion in foreign debt as the pandemic and the war in Ukraine made it impossible to make payments to overseas creditors.

Sri Lanka has asked for an International Monetary Fund bailout, which could take up to three months to arrive.

Commenting on the negotiations with the IMF, the finance ministry has said the key areas discussed include addressing the immediate need of restoring supply chains of essential items, including fuel, LP gas, and pharmaceuticals.

Other main points discussed include securing bridge financing in the interim period until the IMF financing with an economic programme is finalised, and implementing short to medium-term policies to ensure macroeconomic stability and facilitate greener, more inclusive, sustainable, and stable growth in the country.

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In order to secure an Extended Fund Facility (EFF) to overcome the current difficult financial situation, a formal request was also made for a Rapid Financing Instrument (RFI) for consideration by the IMF to obtain immediate financing for the country, which will be a bridge to the EFF.

Central bank governor Nandalal Weerasinghe earlier in the week said the staff-level agreement with the IMF could be reached during the next two months.

The finance ministry has also noticed the registered importers apply to avail themselves of the facility of the Indian Credit Line of USD 1 billion at the Indian Credit Facility Coordinating Unit (ICFCU) of the ministry.

India has agreed to extend an additional USD 500 million credit line to help Sri Lanka import fuel. New Delhi has also already agreed to defer USD 1.5 billion in import payments that Sri Lanka needs to make to the Asian Clearing Union.

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