The president of Sri Lanka’s central bank indicated on Thursday that the country’s economic crisis will result in a record contraction of at least 8% this year, but that the population may soon expect some relief from runaway inflation.
After months of food, gasoline, and medication shortages, the island nation defaulted on its $51 billion foreign debt in April and is now seeking a bailout from the International Monetary Fund.
Scarcity and a currency meltdown have pushed up costs, making life difficult for the country’s 22 million residents.
The Central Bank of Sri Lanka predicted the economy could drop by as much as 7.5% this calendar year, which would be significantly worse than the 3.6% reduction seen in 2020 before the pandemic hit.
However, governor Nandalal Weerasinghe told reporters in Colombo, “we now think it will exceed 8.0 percent.”
The official rate of inflation is 60.8%, but he predicts it will reach “around 65%” in September before gradually declining due to lower demand and improved supplies.
He also mentioned that improved currency inflows and reduced imports had helped alleviate the foreign exchange shortage that had precipitated the economic crisis.
Weerasinghe noted that the country could now afford to import gasoline, diesel, and pharmaceuticals.
Strict fuel rationing has reduced the long wait times that drivers faced at the height of the fuel scarcity in Sri Lanka.
After months of protests over the economy’s collapse, President Gotabaya Rajapaksa resigned last month after being chased out of his official residence by an angry mob.
Rajapaksa has been blamed for the island nation’s economic collapse, which has left it unable to pay for basic imports.
Since then, he has traveled to Thailand, and friends and family said he is anxious to return home and face the corruption accusations that had been put on hold due to his presidential immunity.
Discussions with the IMF were put on hold during the political unrest last month, but a mission from the international lender of last resort is expected in Colombo by the month’s end.
Weerasinghe expressed optimism that a staff-level agreement with the Fund will be finalized by the end of the month, paving the way for an official bailout arrangement.