Sri Lanka’s Economic Condition Continues to Deteriorate, Inflation Rate Increases in July

According to the World Food Programme (WFP), Sri Lanka's economy has continued to deteriorate, with the headline inflation rate rocketing to yet another all-time high in July. According to WFP, this rate of 66.7% marked yet another alarming increase from 58.9% in June (based on the most recent year-over-year National Consumer Price Index [NCPI]).

An even worse situation with regard to food security may result from the population's response to rising prices and inflation. According to the Crop and Food Security Assessment Mission of the WFP and FAO, 6.3 million people already experience food insecurity. Without prompt action, these numbers might rise even higher.

Children could lose access to nourishing meals as a result of the crisis, according to the WFP. Sri Lanka is ranked fifth among the 10 nations with the highest global food price inflation, according to the most recent World Bank assessment.

The World Bank stated in its Food Security Update that trade policy actions on food and fertilisers have increased significantly since the start of the war in Ukraine. At the start of the COVID-19 pandemic, countries actively used trade policy to address domestic needs when faced with possible food shortages.

Sri Lanka's domestic food supply has been severely depleted as of July. Due to a lack of fertiliser, Sri Lanka's agricultural production has dropped by 40% to 50%, and there isn't enough money in the country to import food.

The food supply is anticipated to be constrained by a shortage of fuel and fertiliser (used for harvesting, transportation, and land preparation). The first shipment of 44,000 tonnes of urea backed by Indian credit has provided some solace (and 21,000 tonnes is expected to arrive soon). According to the assessment, there has been an increase in demand for Indian rice, with 9.6 million tonnes shipped this year.

Exporters are moving quickly to open letters of credit and have signed contracts to export 1 million tonnes of rice from June through September 2022 out of concern that export restrictions will be implemented (as has been done for wheat). Additionally, Sri Lanka experienced an 80% increase in food prices.

This occurs as food price inflation in South Asian nations, including Pakistan, continues to be at a multiyear high. The first grain shipment from Ukraine has begun, but issues with food security still exist.

The agricultural, cereal, and export price indices have been stable over the last two weeks, according to the World Bank's assessment, with the agricultural and cereal price indices being 1% higher than they were two weeks ago. Worldwide, domestic food price inflation is still high, with high inflation rates continuing in virtually all low- and middle-income nations and sharply rising in high-income nations.