Amidst political and economic turmoil in the country, the economy of Sri Lanka received good news on Monday as inflation in the south Asian country reduced marginally to 66 percent in the month of October.
According to statistics published by The Department of Census and Statistics on Monday, inflation got reduced by more than four percent in October when compared to inflation levels in September. In September 2022, prices increased at a whopping rate of 69.8 percent.
In October, the consumer price index of food items also witnessed a slight decrease from 94.9 percent to 85.6 percent. Till September, prices of food items were increasing for 12 months consecutively resulting in a massive surge in the cost of living.
Authorities have so far not given any practical explanation as to how such a weak economy was able to reduce inflation at this stage when major economies around the world are unable to control high prices for essential commodities. It is also important to note that the government decided to reduce the price of fuel two times in October. Prices of fuel got reduced by nearly 20 percent which could be a major factor in the reduction of inflation in the economy.
Sharp price increases for both food and fuel have led to a drop in demand and queues for petrol and diesel and cooking gas have sharply reduced in recent weeks.
Impractical economical decisions and the inability of the political center to control high volatility in the economy had pushed Sri Lanka into a severe crisis which resulted in citizens rampaging the presidential palace and the resignation of Gotabaya Rajapaksa. Rajapaksa then escaped from the country as citizens were visibly angry with the economic and political policies of the government under him.
In April 2022, the government of Sri Lanka defaulted on a 51 billion dollar foreign debt as the foreign exchange of the government ran dry due to the severe economic turmoil. This forced the government to approach International Monetary Fund for a financial bailout.
After discussing with the government of Sri Lanka and creditors to whom the country owes money, International Monetary Fund has tentatively approved a four-year, $2.9 billion bailout. The bailout by IMF will help Sri Lanka reorganize its financial sector and rebuild its economy. The bailout would only come into effect if the government of Sri Lanka adheres to the terms and conditions of the bailout agreement.
IMF has also asked the government to bring under control surging inflation in the economy. The government has also been asked by the international financial institution to crack down heavily on corruption in the economy which is one of the major factors for the political and economic condition of Sri Lanka.