Meanwhile, China has also reportedly pledged to donate one million metric tons of rice to Colombo, which is expected to be delivered in March 2022. Colombo had also requested a $200 million line of credit from Pakistan to import essential products. The issue was reportedly raised during Sri Lankan Trade Minister Bandula Gunawardana’s recent visit (January 20-26) to Islamabad, ET has learned.
The ban on the import of agrochemicals in April 2021 would have accentuated the crisis. During the ban, the use of substandard organic fertilizers and pesticides severely reduced the yields of vegetable and fruit crops. After intense protests from farmers, the government lifted its import ban on agrochemicals in October 2021.
Food prices pushed year-on-year inflation in December 2021 to a record high of 21.5%, from 16.9% in November and 7.5% a year ago.
Senior Sri Lankan ministers recently warned parliament of a growing food crisis with rice harvests expected in March 2022 set to be significantly lower after a ban on agrochemical imports last year saw the farmers abandon more than 30% of agricultural land.
There is a slow economic recovery from the pandemic, spiraling inflation and depletion of foreign exchange reserves. The Covid pandemic has hit its tourism-dependent economy hard.
Previous authorities in Colombo attempted to impose rationing of essential goods, but the move was deemed unpopular and Udith Jayasinghe, Secretary of the Ministry of Agriculture, called for a formal rationing program to ensure that the elderly and the sick can be fed within months. in front, has been removed.
Sri Lanka’s foreign exchange reserves have fallen sharply to $3.1 billion at the end of December 2021. The current figure is sufficient to finance less than two months of imports. In addition, international rating agencies downgraded Sri Lanka’s sovereign ratings over fears of defaulting on its $35 billion external debt.
In December 2021, Fitch Solutions revised Sri Lanka’s real GDP growth forecast for 2021 upwards to 4.2% (from 4.0% in September) and estimated an annual growth rate of 4.4% for 2022. However, it was estimated that even if activity in the industrial sector normalizes, growth is likely to be capped due to subdued export prospects, rising input costs and lack of foreign currency for imports.