Meanwhile, China too reportedly committed to donate one million metric ton of rice to Colombo, likely to be delivered in March 2022. Colombo had also requested a $ 200 million credit line from Pakistan to import essential commodities. The issue was apparently raised during the recent visit (January 20-26) of Sri Lankan Trade Minister Bandula Gunawardana to Islamabad, ET has learnt.
The ban on the import of agrochemicals in April 2021 allegedly accentuated the crisis. During the ban, the use of substandard organic fertilizers and pesticides sharply reduced vegetable and fruit crop yields. After intense farmer protests, the government lifted its agrochemical import ban in October 2021.
Food prices has pushed up year-on-year inflation in December 2021 to a record high of 21.5 percent, up from 16.9 percent in November and 7.5 percent a year ago.
Senior Sri Lankan ministers recently warned the Parliament of a growing food crisis with rice harvests due in March 2022, expected to be drastically lower after the agrochemical import ban last year saw farmers abandoning more than 30 percent of agricultural land.
There is slow post pandemic economic recovery, spiraling inflation and depleting foreign exchange reserves. The Covid pandemic badly hit its tourism-dependent economy.
Earlier authorities in Colombo tried to impose rationing of essential goods, but the move was found unpopular and Udith Jayasinghe, Secretary of Ministry of Agriculture who gave a call for a formal rationing scheme to ensure that the elderly and the sick could be fed in the months ahead, was removed.
Sri Lanka’s foreign reserves has sharply declined to US$3.1 billion at the end of December 2021. The current figure is enough to finance less than two months of imports. Further, the international rating agencies have downgraded Sri Lanka’s sovereign ratings over fears of default on its $35 billion foreign debt.
In December 2021, the Fitch Solutions revised up 2021 real GDP growth forecast for Sri Lanka to 4.2% (from 4.0% in September) and estimated an annual growth rate of 4.4% for 2022. However, it was viewed that even if activity in the industrial sector would normalize, growth would likely be capped due to a moderating export outlook, increased cost of inputs and lack of foreign currency for imports.