Slow growth and record inflation: Lanka economy under severe pressure

Slow growth and record inflation: Lanka economy under severe pressure

Slow growth and record inflation: Lanka economy under severe pressure

April 12 2022 11:28 PM



Sri Lanka’s $81bn economy is under severe pressure, with Russia’s invasion of Ukraine raising global oil prices. 

It announced a default on its $51bn foreign debt yesterday amid its worst economic crisis since independence in 1948 and escalating protests demanding the government’s resignation.

All outstanding payments to bond holders, bilateral creditors and institutional lenders will be suspended until a debt restructure, the finance ministry said. 

The newly appointed central bank governor said authorities are seeking to negotiate with creditors.

The island nation of 22mn people has been hit by prolonged power cuts and shortages which have drawn protesters out on to the streets – in a threat to the country’s lucrative tourism industry – and put President Gotabaya Rajapaksa under mounting pressure.

Sri Lanka’s growth is slow and inflation is at multiyear highs. The authorities have since raised interest rates, devalued the local currency and placed curbs on non-essential imports. 

But with a meagre $2bn in foreign exchange reserves and $7bn in debt payments due this year, restoring the country’s economic health remains an uphill battle. 

Consumer prices rose nearly 19% in March from a year earlier, the fastest rate