Friday, 17 May, 2024
By: Anshul Vipat
Sri Lanka is in the midst of its worst financial crisis in seven decades
The island nation of Sri Lanka is in deep waters. The country has been battling high-inflation, shortage of food and essentials, depleting foreign exchange reserves and a political conundrum. And while Colombo has been receiving aid from various quarters particularly from its neighbour India, the situation has improved a bit. Infact, it has gone from bad to worse. Last week, country's prime minister had declared that the country's debt-laden economy has "collapsed" and it is unable to import food, medicine, cooking gas, and other fuels. Both the length of the lineups at filling stations and the regular power outages have increased.
According to the most recent government statistics, Sri Lanka’s inflation has jumped to 45.3 percent from 33.8 percent recorded in April 2022 on a year-on-year basis. It was the highest inflation rate recorded ever and the sixth consecutive double-digit growth in consumer prices. The Colombo Consumer Price Index (CCPI) also jumped from 180.2 in April to 195.2 in May. CCPI is compiled to indicate average changes in the prices of goods and services purchased by households in urban areas of Colombo district.
Accordingly, the Year-on-Year inflation of the food group increased to 58.0 percent in May 2022 from 45.1 percent in April 2022 and the Year-on-Year inflation of the non-food group increased to 34.2 percent in May 2022 from 23.9 percent in previous month. It was the highest producer inflation since at least January of 2015. Prices accelerated for both manufacturing (58.9% in May vs. 39.3% in March) and agriculture (35.4% vs. 31.9%).
During the year up to 24 June 2022, the Sri Lankan rupee depreciated against the US dollar by 44.4 per cent. Given the cross currency exchange rate movements, the Sri Lankan rupee depreciated against the Indian rupee by 41.6 per cent, the Euro by 40.2 per cent, the pound sterling by 38.8 per cent and the Japanese yen by 34.8 per cent during this period.
Sri Lanka is in the midst of its worst financial crisis in seven decades, after its foreign exchange reserves plummeted to record lows, with dollars running out to pay for essential imports including food, medicine and fuel. The island nation’s cabinet of ministers recently decided to limit distribution of fuel to essential services until July 10. The government had already closed public schools and trains have reduced in frequency. Blackouts round the clock and deadly fights over essentials have become a norm lately.
According to experts, the crisis steamed from years of mismanagement and corruption, growing debt, impact of pandemic and terror attacks on tourism.
