Sri Lanka faces inflation surge amid IMF bailout negotiations

Sri Lanka is currently grappling with a notable increase in annual inflation, which surged to 1.7 percent in June from 0.9 percent in the previous month. This rise has been primarily attributed to an uptick in food prices, as per official data released by the Census and Statistics department. The country recently achieved a crucial milestone by restructuring a $10 billion debt with its bilateral creditors, a move essential for the continuation of its IMF bailout programme.

Food inflation specifically has seen a rebound, with prices climbing by 1.04 percent in the year leading up to June after a period of stability. The nation faced a severe economic crisis in 2022, characterized by a default on foreign debt that drove inflation to nearly 70 percent. The Central Bank of Sri Lanka has set a target to maintain overall inflation below 5.0 percent for the year 2024.

As Sri Lanka gears up for a presidential election, opposition parties have pledged to review the terms of the IMF bailout, which have necessitated stringent austerity measures. While the IMF is willing to entertain alternative proposals from various political factions, it underscores the importance of adhering to the conditions outlined in the bailout agreement.

The economic landscape in Sri Lanka remains challenging, with inflation on the rise and ongoing negotiations regarding debt restructuring and IMF bailout terms. The country's ability to navigate these hurdles will be crucial in stabilizing its economy and ensuring sustainable growth in the future.