Sri Lanka economic crisis: Power prices hiked by 66%; aims to gain IMF support

Another of India’s neighbours, Sri Lanka in the midst of an economic crisis, is hiking up prices as it aims to persuade the International Monetary Fund to lend it a helping hand. Sri Lanka hiked up prices of power by 66 per cent, following an increase in electricity prices by 75 per cent last year. The country’s inflation was above 54 per cent on-year in January and income taxes as high as 36 per cent.

Power and Energy Minister Kanchana Wijesekera said that the country has no choice but to move towards cost reflective pricing. "We know that this will be hard on the public, especially the poor,” said the minister to reporters, further adding, “We hope that with this step Sri Lanka has moved closer to getting the IMF programme."

Sri Lanka that was in the middle of a political as well as economic turmoil last year was given a loan of $2.9 billion in September by the IMF. However, the loan came with conditions such as increasing taxes, removing subsidies, and cutting public sector debt. Similar conditions were laid out for Pakistan as well.

The minister believes that the increase in power prices would offset the gap caused by the cessation of government subsidies from January. He said that the government hopes to reduce prices by July, when it will revise the prices again.

Analysts, however, believe the price hike will increase inflation further.

Experts believe that inflation would increase slightly to 55.5 per cent next month, but overall inflation would dip. Inflation had hit a record 73.7 per cent in September last year.

INDIA-SRI LANKA POWER GRID PACT

Sri Lanka and India will sign a pact to link their power grids and start negotiations on an upgraded trade agreement within two months, a Sri Lankan diplomat said. India has already provided $4 billion in assistance to its neighbour since the crisis last year. Sri Lanka is now seeking to enhance trade and investments.

Diplomat Milinda Moragoda said India offers the prospect of growth. “So we will have to move on that. Tourism from India, investment from India, integration with India. That's what we have to do,” said the diplomat.

With the power grid project, Sri Lanka hopes to get the transmission line in place within 2-3 years so that renewable power produced in Sri Lanka can be sold to India.

India is Sri Lanka's biggest trading partner accounting for about $5 billion each in bilateral trade in 2021.

(With Reuters inputs)

Also read: China offers Sri Lanka debt moratorium, IMF help still in doubt

Also read: 'Only option is to seek IMF support', says Sri Lankan President on economic collapse; to hold debt restructuring talks with India