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The Central Bank of Sri Lanka raised its interest rates by 50 basis points on Thursday 20 January in an attempt to control galloping inflation and discourage consumption, at a time when the country, in the midst of an economic and monetary crisis, comes close to defaulting on payment.
Sri Lanka is facing a serious economic crisis which is expected to worsen further, according to the authorities. Inflation there is breaking records, reaching 14% on an annual basis last December, 21% for food products. Tourism, the Emerald Isle’s main source of currency, has been at a standstill since the start of the Covid-19 pandemic. And for lack of money, the government has limited imports, particularly of basic products or agricultural fertilizers.
Will the 22 million Sri Lankans be able to eat their fill in the months to come? This is the question that torments people’s minds. Harvests are expected to decline sharply due to restrictions imposed on farmers by the government last year. They might no longer import fertilizer and pesticides, due to lack of foreign currency. Consequence: 30% of cultivated land has been left fallow.
These same monetary restrictions prevent traders from importing essential products such as milk, sugar and lentils, which are therefore rationed in stores.
Those shortages reinforce inflation every month, which begins to become unbearable. And if the government has released a billion dollars for state pensioners and two million civil servants, the vast majority of the population is destitute.
The lack of foreign exchange – the Central Bank barely has enough to cover two months of imports – is the direct consequence of the Covid-19 pandemic which shut down the tourism sector: the country’s main source of currency.
The Central Bank, however, ensures that it can control the situation. It recently announced that it does not want a bailout from the International Monetary Fund (IMF).
