Sri Lanka inflation climbs as new tax looms

Sri Lanka’s inflation rose to 4.0 percent in December, the third consecutive monthly rise as the cash-strapped nation was set to increase taxes from the New Year.The benchmark Colombo Consumer Price Index jumped by 1.7 points to reach 195.1, or a 4.0 percent increase compared to a year ago when inflation was 57.2 percent.

The department of Census and Statistics said the increase in December was due to higher energy tariffs and high costs of non-food items.Inflation which peaked at 69.8 percent in September last year came down to a low of 1.3 percent in September this year, but has since been on a rising trajectory.

Finance ministry officials said they expected prices to climb further in the New Year as fuel will be brought under an 18 percent value added tax from January 1.The current VAT rate of 15 percent will be increased to 18 percent for all other goods and services from January.

The country defaulted on its $46 billion debt in April last year after running out of foreign exchange to finance imports of even the most essential commodities, making life a misery for the island’s 22 million people.

Sri Lanka in March secured a four-year $2.9 billion bailout package from the IMF subject to Colombo ensuring debt sustainability in line with agreed targets.The IMF warned in September that Sri Lanka’s “full economic recovery is not yet assured”.At the peak of last year’s economic crisis, months of civil unrest forced the ouster of then-president Gotabaya Rajapaksa when protesters stormed his residence.