Sri Lanka inflation hits record 30% as street protests intensify

Inflation in Sri Lanka has hit a record 30%, triggering renewed calls for the ruling Rajapaksa family to step down as people in the country struggle to cope with shortages of fuel, food and medicines that have brought thousands onto the streets.

Sri Lanka's President Gotabaya Rajapaksa has agreed to replace his older brother as prime minister in a proposed interim government to solve the political impasse caused by the country's worst economic crisis in decades, reports Reuters and AP.

Citing the local media, Bloomberg reports, politicians are preparing positions before parliament resumes May 4, and it's unclear how events will play out. Opposition leaders have said they have enough support to oust President Rajapaksa, in line with demands from street protesters seeking his resignation. 

Data Friday showed costs in the capital Colombo rose 30%, making more interest-rate increases almost certain to meet conditions of an International Monetary Fund bailout, the report adds.

Consumer prices surged 29.8% in April from a year earlier, the Department of Census and Statistics said in a statement. That's faster than 18.7% in March and a 25% median estimate in a Bloomberg survey. The nation's foreign-exchange reserves dipped to $1.94 billion. The government has already suspended payments on foreign debt and is seeking assistance from India, China and multilateral lenders to pay for food and fuel.

Sri Lanka's decision to float the rupee after it ran out of dollars to defend a peg, coupled with rising global commodity prices mean inflation could stay higher. 

Finance Minister Ali Sabry also told the BBC that Sri Lanka will raise levies as the government made a mistake when it almost halved the value added tax rate to 8% in 2019.

Sri Lanka needs $4 billion over the next eight months to pay for imports of essentials. The central bank, which has raised interest rates by 900 basis points from a pandemic-era low, next meets to review policy May 19.

The South Asian nation expects to sign a staff-level agreement with the International Monetary Fund to unlock emergency funds within two months to ease its worsening economic crisis. Earlier this week, the World Bank granted $600 million in financial assistance to the country. It is also seeking bilateral help from neighbouring China and India.

Sri Lanka's economy was hit hard by the pandemic and tax cuts by the populist government of President Gotabaya Rajapaksa.

This has led to dwindling foreign currency reserves and shortages of fuel, food and medicines that have brought thousands onto the streets in sporadically violent protests.

Figures released on Friday showed the cost of most goods continued to rise sharply.

Food inflation for April stood at 46.6% year-on-year, compared with 30.2% a month earlier, data from Sri Lanka's government statistics department showed. Transportation costs were up 68.5% from last year versus 35.5% in March.

In neighbouring Pakistan, which is also grappling with a battered economy, inflation is expected to remain above 11% by the end of this financial year, according to the IMF's Regional Economic Outlook Report. The country's economic growth is expected to be at 4% this year as compared to its growth of 5.6% during the previous year.

Inflation in India is also on an upward trend and figures released by India's Statistics Ministry earlier in April show retail inflation rose 6.95% in March from a year ago. It marked the third consecutive month that retail inflation breached the central bank's upper tolerance margin of 6%. 

Inflation rate in Nepal increased to 7.14 percent in March from 5.97 percent in February of 2022.The Himalayan nation on Wednesday banned imports of cars,large-engine motorbikes and expensive mobile phones to conserve depleting foreign currency reserves and contain inflation.