Sri Lanka Price Hike After Tax Rises For IMF Bailout

Prices spiked more than six percent in Sri Lanka last month after it hiked taxes in line with IMF conditions to maintain a $2.9 billion bailout loan, official data showed Thursday. The 6.4 percent reading was well up from the 4.0 percent seen in December, according to the Central Bank of Sri Lanka, though it is still less than a tenth of the levels seen at the height of the island’s financial crisis just over a year ago. “Inflation accelerated in January 2024 mainly due to tax adjustments implemented at the beginning of the month and weather-related disruptions to food supply,” the bank said. Food inflation in January rose to 3.3 percent, up from 0.3 percent in the previous month, as the levy on goods and services kicked in. The government raised value added tax from 15 to 18 percent from January, while an exemption on a large number of goods and services was also removed, further fuelling prices. The country is still emerging from its worst ever economic crisis in 2022, which saw the government default on its $46 billion foreign debt and inflation peak at almost 70 percent. The upheaval led to months of protests that eventually forced then-president Gotabaya Rajapaksa to step down in July of that year. The International Monetary Fund revived its $2.9 billion bailout for Sri Lanka in December after Colombo clinched a debt restructuring deal with China, its biggest official lender. The IMF had wanted Sri Lanka to raise its revenue to stabilise the economy.