Lanka allows steep hike in food prices to ease shortages

Wednesday 13th October 2021 06:51 EDT

Colombo: The Sri Lankan government has ended price controls on essential foods in a bid to end black market trading as food shortages worsen amid a foreign currency crisis. The cabinet decided to deregulate prices for milk powder, wheat flour, sugar and liquified petroleum gas hoping it would increase supplies.

“Prices could go up by as much as 37 per cent across the board, but it is hoped dealers will not make unconscionable profits,” a trade ministry official said. A shortage of foreign currency caused by a pandemic recession has unleashed the shortages of food, medicines and other essential items for the island nation of 21 million people.

The government declared a state of emergency over the food shortages on August 31 and imposed rationing. It forced farmers to sell their rice to a state agency and seized some from private warehouses. But the shortages worsened and last week authorities lifted controls on rice hoping to get supplies into markets.

Since then, rice prices have risen by more than a third though people can buy as much as they want. During rationing, state stores sold only one kg of rice for each person. Sugar and lentils were similarly rationed. Virtually all private traders withdrew from the market.

Central bank Governor Nivard Cabraal told reporters that he had authorised some $50m to get the release of containers of milk powder blocked in Colombo port for the past three months.

With price controls removed, the price of a kilo of imported milk powder was increased by more than a third to 1,300 rupees ($6.5), traders said. The price of gas is also due to rise by about 35 per cent. The Sri Lankan economy shrank by a record 3.6 per cent last year as the coronavirus pandemic brought a brutal halt to the key tourism industry.

The government banned imports of non-essential goods, including vehicles, spare parts and appliances in March 2020 because of currency shortages. Sri Lanka was already suffering from heavy foreign debt repayments.

Sri Lanka’s foreign reserves stood at $3.55bn at the end of August. It has to repay about $2bn in foreign debts before the end of the year. Some analysts and opposition politicians say it may be forced to seek a bailout.

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