In addition to efforts to strengthen the domestic resilience, the Sri Lankan Government is urgently seeking the United Nations' support to build a stockpile of essential foods as well as calling on the international community to help the country to overcome the crisis.
Amid the economic crisis, faces shortages of food, fuel and other essential commodities. Due to a lack of foreign currency, Sri Lankan businesses have been unable to pay for important import orders. In addition, the inflation rate has hit a record high and people have had to live in a prolonged blackout.
Official statistics released on June 1 showed that inflation in Sri Lanka set a new record in May, marking the 8th consecutive month in which inflation has increased. Accordingly, the Colombo Consumer Price Index (CCPI) increased to 39.1 percent, higher than the rate of 29.8 percent in the previous month. Food inflation (Y-o-Y) increased from 46.6 percent in April to 57.4 percent in May.
The increase in prices in May did not reflect the actual increase in fuel prices, one of the key commodities that is scarce in Sri Lanka. Economists said that the real consumer price index increased faster than official statistics.
In response to the cash shortage, the Sri Lankan Government has increased value added tax (VAT) and corporate income tax to increase revenue for the budget. In addition, the Government also imposed income tax on wages and reduced tax exemptions for individual taxpayers. Sri Lanka’s Finance Ministry announced the country’s decision to raise taxes on many imported goods, including wine and cheese, in order to limit imports and maintain foreign exchange reserves.
Under this decision, Sri Lanka will impose a much higher tax rate mainly aimed at luxury items, which are out of reach for most people but are widely used in hotels catering to foreign tourists, a key source of revenue. From June 1, imported cheese and yogurt receive a new tax of 2,000 rupees (5.50 USD) per kilogramme. Duty on chocolates was raised by 200 percent. Additional levies also apply to imported fruit while duties on all alcoholic drinks and electronic appliances were doubled.
Cash shortages, inflation, rising prices and unfavourable weather have left Sri Lanka facing severe food shortages and famine. The country lost about 50 percent of rice production last year. The latest crop, which started in May, has been plagued by a lack of fertilizer.
According to the Prime Minister's Office of Sri Lanka, the UN Food and Agriculture Organisation (FAO) is now planning a "food crisis response plan" to shore up reserves and will also provide additional funds for urban agriculture. The World Bank will disburse 700 million USD within the next few months to help this South Asian country overcome the current severe economic crisis.
The World Bank's financing is considered a "lifebuoy" while Sri Lanka waits for long-term support through the International Monetary Fund (IMF) and other international organisations as well as donors from other countries. Currently, Sri Lanka is negotiating with the IMF about a bailout package while discussing debt restructuring with creditors. The Sri Lankan Government has estimated it will need between 3 and 4 billion USD to get the country out of the current crisis.
The difficult lives of people lead to the risk of political and social instability. With the help of the international community, the Sri Lankan Government is trying to find solutions to overcome the "crisis storm", bringing the country back to a period of stability and development.