Sri Lanka (Commonwealth Union)_ Sri Lanka increased the price of electricity by 66 percent on February 16, with the government hoping that this will convince the International Monetary Fund (IMF) to consider a bailout for the crisis-hit nation. The announcement about the hike in electricity costs was made by Kanchana Wijesekra, Minister of Power and Energy. The recent jump follows a 75% hike from the previous year and is likely to exacerbate the miseries of ordinary Sri Lankans who are already struggling with an annual inflation rate that surpassed 54% in January.
Addressing the reporters, Wijesekera said, “It is not the view of the government that we should continue this by placing the entire burden on the people. After looking at all options, we had to come to this conclusion reluctantly, as it was the only viable option available. We hope that with this step, Sri Lanka has moved closer to getting the IMF programme.” Wijesekra stated that the current price increase is intended to assist the electricity ministry compensate for a drop in revenue caused by the January elimination of government subsidies. In addition, he noted that the price increase will assist the ministry in handling long-term fuel agreements.
In September, the IMF agreed to lend $2.9 billion to Sri Lanka in order to help the country overcome its extreme financial crisis of the past seventy years, but the loan is contingent on Sri Lanka raising taxes, eliminating subsidies, and reducing its public sector debt. President Ranil Wickremesinghe’s government, which assumed office after his predecessor was overthrown by widespread protests against economic mismanagement last year, is in severe need of cash and has been soliciting help from international organizations since assuming office in July.
Analysts anticipate that the increase in electricity prices would further exacerbate inflation. According to Dimantha Mathew, head of research at First Capital Holdings, “We are projecting inflation to increase slightly to 55.5% next month, but overall inflation will continue downward given the high base effect from last year”. In September 2022, inflation reached a new high of 73.7%. Further, the income tax rate can go up to 36%.
