After the sharp depreciation of South Asian currencies caused food prices to soar, Sri Lanka declared an economic emergency. The authorities stated that they will control the supply of staple foods including rice and sugar and fix prices in the short term. Try to control rising inflation. Since the beginning of this year, the Sri Lankan rupee has fallen by 7.5% against the US dollar. Comprehensive emergency measures took effect on August 31. A former army general has been appointed by the government as an essential service commissioner, with the right to confiscate inventory held by merchants and retailers.
Take measures to provide basic food to the public at preferential prices by purchasing basic food stocks,” the island nation’s President Gotabaya Rajapaksa said in a statement. “These items will be delivered at prices guaranteed by the government. The statement added that it is based on the customs value of imported goods to avoid market violations. The statement was issued after the cost of basic foods such as sugar, onions and potatoes increased. Due to shortages of other products such as powdered milk, kerosene, and gas, long queues have also formed outside the shops.
The country’s Census and Statistics Department stated that the exchange rate rise was one of the reasons for the increase in prices of many necessities last year. The department stated that the month-on-month inflation rate rose to 6% in August, mainly due to high food prices. As a net importer of food and other basic products, the number of coronavirus cases and deaths in the country is increasing, and tourism is one of the country’s main sources of foreign exchange. Partly due to the decline in tourist arrivals, Sri Lanka’s economy contracted by a record 3.6% last year.
A presidential adviser warned that unless consumption is reduced, a fuel rationing system may be implemented before the end of the year. A $1 billion bond was issued in July, but its shocking financial situation suggests that it may only be a step toward the first sovereign default. All the signs of the crisis are there: almost half of the face value of bonds, debt, GDP level of more than 100%, more than 80% of government revenue is used to pay interest only, and reserves are hardly enough to cover several months of expenses.
The island country seems unlikely to be self-reliant, especially when COVID-19 has plagued the tourism industry and restricted foreigners from sending money abroad. Earlier this month, Sri Lanka became the first country in the region to raise interest rates in an attempt to support its currency to help ease inflationary pressures caused by high import costs. But importers still stated that they cannot pay for the food and medicines they can buy in U.S. dollars. Sri Lanka’s foreign exchange reserves fell from US$7.5 billion when the government took office in November 2019 to US$2.8 billion at the end of July, when the rupee exchange rate against the US dollar had depreciated by more than 20%.
