The Central Bank of Sri Lanka has revealed the details of the country’s most severe economic crisis in over 70 years in its annual report. The bank stated that last year, wages failed to keep pace with the skyrocketing cost of goods, including food and fuel. The report also attributed several inherent weaknesses and policy lapses to the significant economic challenges that have engulfed the South Asian nation.
The bank is predicting that the economy will bounce back next year and grow by 3.3% after a 2% shrinkage this year. However, the International Monetary Fund (IMF) expects a contraction of around 3% this year and growth of only 1.5% in 2024.
The report revealed that headline inflation peaked at nearly 70% in September, with prices of fresh fruits, wheat, and eggs more than doubling. The cost of essential utilities like electricity and water, as well as transportation, also rose even faster. The country defaulted on its foreign debt for the first time since independence from the UK in 1948, and the economy shrank by 7.8% last year.
The central bank’s report called Sri Lanka’s economic model “unsustainable,” leading the country to a multifaceted disaster. The country owes around $7bn to China and $1bn to India, and both countries have agreed to restructure their loans to provide more time for repayment. The IMF approved a $3bn loan to Sri Lanka last month, and the country is currently negotiating its debt repayments with bondholders and creditors before the IMF reviews the situation in September.
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