Sri Lanka continues to record high inflation

Colombo: Soaring inflation rates continued to roil the crisis-hit Sri Lankan economy, with the National Consumer Price Index reporting a 33.8 per cent year-on-year rise in April, more than six times the 5.5 per cent reported last year.

Sri Lanka continued to witness a sharp rise in the prices of essentials and food items and a shortage of fuel as the island nation of 22 million is witnessing the worst economic crisis since independence.

The annual food inflation stood at a whopping 45.1 per cent this month, according to the Department of Census and Statistics, which tracks inflation rates in the country.

The Sri Lankan government on Tuesday raised the petrol price by 24.3 per cent and diesel by 38.4 per cent, a record hike in fuel prices amid the country's worst economic crisis due to the shortage of foreign exchange reserves.

With the second fuel price hike since April 19, now the most-used Octane 92 petrol would cost 420 rupees ($1.17) and diesel 400 rupees ($1.11) a litre, an all-time high. The decision to raise the Octane 92 petrol price by 24.3 per cent or 82 rupees and diesel by 38.4 per cent or 111 rupees per litre was taken by the state fuel entity, Ceylon Petroleum Corporation.

Fuel Price will be revised from 3 am today. Fuel pricing formula that was approved by the Cabinet was applied to revise the prices, Power and Energy Minister Kanchana Wijesekara said on Twitter. Sri Lanka has also hired France-based financial and legal advisory firms Lazard and Clifford Chance LLP to support its debt restructuring as the country is on the brink of bankruptcy.

A crippling shortage of foreign reserves has led to long queues for fuel, cooking gas and other essentials while power cuts and soaring food prices heaped misery on the people.

With the economic crisis and the shortage of forex, the Indian credit line of $500 million for fuel imports has provided a lifeline to the island nation.The Asian Development Bank as well as the World Bank has just promised around 160 million each to Sri Lanka.

Sri Lanka is now negotiating a loan with the IMF.

The country had to pay $106.34 million this year but only managed to pay $12.4 million by April.

In this challenging time, on May 20, the Group of Seven (G7) nations announced that they will assist Sri Lanka in securing debt relief.

In March 2020, the Sri Lankan government imposed an import ban as the dollar inflows slowed down.

President Gotabaya Rajapaksa's sweeping tax cuts in 2019, followed by the pandemic were also instrumental in Sri Lanka's economy going into a tailspin.