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Sri Lanka minister warns crisis will worsen as inflation hits record high

COLOMBO: Sri Lanka’s unprecedented shortages of food, fuel and vital medicines will worsen before an international bailout is negotiated, its finance minister warned Friday as inflation hit another record high. Ali Sabry, who is in Washington for talks with international lenders, said an IMF bailout may take months, but he was seeking about $2.5 billion in emergency assistance from others.

“It is going to get worse before it gets better,” Sabry told reporters in an online press conference. “It is going to be a painful few years ahead.” However, he added that he was optimistic Sri Lanka could “come out of this strong and we may not even have to go for an IMF program ever again.”

His remarks came as official data showed  Sri Lanka’s inflation hit a record high for the sixth consecutive month as the country was gripped by shortages never experienced before. The statistics office said the broad-based National Consumer Price Index (NCPI) rose 21.5 percent year-on-year in March, more than four times the 5.1 percent inflation of a year earlier.

Food inflation in March stood at a whopping 29.5 percent, the highest ever. 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 percent. The worsening economic woes has led to clashes at nationwide demonstrations calling on President Gotabaya Rajapaksa to step down over mismanagement and corruption.

Sri Lanka tapped the International Monetary Fund this week for emergency assistance, but was told that its external debt was “unsustainable” and must be “restructured” before any help. “Approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored,” the IMF said. The government last week announced a default on its external debt and said precious foreign exchange will be reserved to finance essential food and medicines.

‘Worst financial crisis’

Sabry said he admitted to the IMF that Sri Lanka’s recent economic blunders in slashing taxes worsened the crisis and that Colombo should have sought its help much earlier. “We have accepted our mistakes… There is no denying the fact that we are facing the worst financial crisis in the history of our country,” he said. Sabry added that Colombo will move for debt restructuring as demanded by the IMF and in the meantime tap neighbouring India for more credit lines to import fuel and other essentials. He was also hopeful of getting “about $500 million” from the World Bank to import food and cooking gas within the next four months, he said.

Sri Lanka will also turn to other key bilateral lenders – China and Japan – to address the crisis of foreign exchange. The acute shortages has led to widespread discontent. 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. – AFP

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