Colombo: Sri Lanka has reported a drop in inflation to 6.3% in its cash-strapped economy, marking the first time in two years that the country has experienced single-digit inflation. The announcement comes amidst the worst financial crisis the island nation has faced.
The Census and Statistics Office of the Sri Lankan government released a statement revealing that the overall rate of inflation, measured by the Colombo Consumer Price Index on a year-on-year basis, stood at 6.3% in July 2023, a significant decrease from the 12% recorded in June 2023.
The last time Sri Lanka recorded single-digit inflation was in September 2021, when it stood at 5.8%. The island nation had faced a severe economic crisis, with inflation reaching a staggering 69.8% in September of the previous year.
The recent drop in inflation can be attributed to the decrease in the cost of food commodities, which has contributed to lower overall inflation rates. Over the past 12 months, food prices have fallen by 1.4%, based on the index.
Sri Lanka's economy was marred by an unprecedented forex crisis, leading to import curtailments, scarcities, and soaring prices. However, the situation has seen improvement since the country secured a USD 2.9 billion bailout from the International Monetary Fund (IMF) in March 2023. The relaxation of import restrictions and measures to address power shortages have played a significant role in this positive change.
Governor of the Central Bank, Nandalal Weerasinghe, had earlier expressed optimism, stating that the country was on track to achieve single-digit inflation by the third quarter of the year.
Sri Lanka's financial woes led to its first-ever sovereign default in April 2022, prompting negotiations with the IMF for the USD 2.9 billion bailout. The island nation faced its worst economic crisis in history, primarily due to a shortage of foreign exchange reserves.
As part of the IMF bailout agreement, Sri Lanka is required to restructure its external debt, a task that needs to be completed by September. The efforts to stabilise the economy and bring down inflation are crucial steps towards navigating the challenges and restoring financial stability in the country.