Inflation in Sri Lanka may increase to 70% in coming months

Colombo: Amid the ongoing economic crisis in the country, the headline inflation in Sri Lanka might increase to 70 per cent in the coming months.

Sri Lanka's Central Bank Governor Dr Nandalal Weerasinghe on Thursday said that the gross official reserves of the country were USD 1.9 billion at the end of June, the News Wire reported. The amount of the gross official reserves include the swap facility equivalent to USD 1.5 billion from the People's Bank of China, he added.

The Central Bank Governor mentioned the present headline inflation in the country is 50 per cent and it might increase to 70 per cent in the coming months.

Broad guidelines and a framework will be issued to banking and non-banking institutions with regard to moratoriums for loans, and restructuring, including grace period for capital/interest where necessary, the News Wire reported citing Dr Weerasinghe.

The guidelines and the framework will be issued for the next six months, the Central Bank Governor said adding that the litigation against defaulters has been recommended to be put on hold for a minimum of six months.

Earlier on Tuesday, Sri Lankan Prime Minister Ranil Wickremesinghe said that the island country aimed to reduce the inflation rate to between 4 and 6 per cent by 2025.

In order to strengthen the rupee and reduce inflation, Wickremesinghe said that they have implemented a plan to limit the printing of money in the future.

Notably, Sri Lanka has been facing the worst economic crisis since independence in 1948, leading to an acute shortage of essential items like food, medicine, cooking gas, and fuel across the island nation.

The nearly-bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, had announced in April that it is suspending nearly USD 7 billion foreign debt repayment due for this year out of about USD 25 billion due through 2026, Sri Lanka's total foreign debt.

The economic crisis has particularly impacted food security, agriculture, livelihoods and access to health services.

Food production in the last harvest season was 40 - 50 per cent lower than last year, and the current agricultural season is at risk, with seeds, fertilisers, fuel, and credit shortages.

Sri Lanka is one of the few nations named by the Food and Agriculture Organization (FAO) which is expected to go without food due to the global food shortage expected this year.