Cash-strapped Sri Lanka hit by record inflation

Crisis-hit Sri Lanka’s inflation hit a record high for the sixth consecutive month, official data showed on Friday as the government asked the IMF for an urgent bailout.

The broad-based National Consumer Price Index (NCPI) rose 21.5 per cent year-on-year in March, more than four times the 5.1 per cent inflation of a year earlier.

Food inflation in March stood at 29.5 per cent, according to the latest data from the Department of Census and Statistics.

The figures are likely to rise further: the state-run oil company has subsequently raised the price of diesel, commonly used in public transport, by 64.2 per cent.

The worsening economic crisis has led to clashes at nationwide demonstrations calling on President Gotabaya Rajapaksa to step down over mismanagement and corruption.

Sri Lanka asked the International Monetary Fund this week for emergency assistance, but was told that the South Asian nation’s $51 billion external debt was “unsustainable” and must be “restructured” before any help.

“When the IMF determines that a country’s debt is not sustainable, the country needs to take steps to restore debt sustainability prior to IMF lending,” the Fund’s country director Masahiro Nozaki said in a statement on Wednesday.

“Approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.”

The government has announced a default on its foreign debt and said precious foreign exchange will be reserved to finance essential food and medicines.

Police clashed with protesters in central Sri Lanka on Tuesday, killing one of them and wounding nearly 30.

At least eight people have also died waiting in long lines for fuel in the past six weeks.

The country’s foreign exchange shortage has led to a slowing down of imports, including essentials.

Shops have rationed the quantity of rice, milk powder, sugar, lentils and tinned fish sold to consumers.

Sri Lanka’s economy has collapsed since the onset of the pandemic, with a nosedive in tourism revenue as well as foreign worker remittances.

Meanwhile, with its ancient fort and sandy beaches, the city of Galle on Sri Lanka’s southern coast should be awash with holidaymakers at this time of year.

Instead, another power cut has plunged the city into darkness, and the historic quarter lies mostly deserted except for a lone tourist using a flashlight to find his way along the pitch black street.

As Sri Lanka sinks deeper into its worst economic crisis since independence, hopes in Galle that it could once more become the booming tourist destination it was before COVID-19 halted global travel in 2020 have been dashed.

Power cuts and essential food shortages have hit the island nation hard for weeks, drawing out protesters onto the streets and putting President Gotabaya Rajapaksa under mounting pressure to resign. On Tuesday, one person died in a protest, the first fatality since the demonstrations began last month.

Tourism earned Sri Lanka $4.4 billion and contributed 5.6% to GDP in 2018, but this dropped to just 0.8% in 2020. However, arrivals topped 100,000 in March for the first time in two years, Sri Lanka’s tourism office said. Overall tourism numbers are higher than they were in 2021, marking what many thought would be a pandemic revival.

“People are protesting. Roads are blocked. (Tourists)...need to travel and they need fuel for that and they can’t wait in the queues,” said Samitha, who gave only one name and works as a front office executive at a hotel in Galle.

Restaurant and hotel owners in Galle are also pessimistic about a robust revival now, as Sri Lanka scrambles for about $3 billion in bridging finance from multiple sources including India, China and the World Bank to pay for critical imports. The country is also negotiating for a programme with the International Monetary Fund (IMF) to address its foreign exchange crisis.

On a recent windy afternoon in Galle, as a few foreign tourists posed for pictures and strolled through its quaint streets, antique shop owner Sepalika Abeysundara choked up while talking of her troubles.

“Not only me but all businesses are suffering because of the current situation. I feel really sad about the state of our country,” she said.