New Year’s joy not so felicity for Sri Lankans battling inflation
Cash strapped and crisis ridden Sri Lankans welcomes the dawn of the New Year 2023 with celebrations on 31st night in low key due to economic woes in 2022 lighting crackers and fireworks glittering the sky in main city centers countrywide.
Sounds of crackers faint and fire works glitter became dim as New Year revelers had to curtail spending in made made economic crisis and central banks monetary policy tightening and treasury’s fiscal policy of tax hiking without considering the plight of the people.
People countrywide bid goodbye to the year 2022 and gear up to ring in 2023 with out much funfair dampened by economic distress coupled with shrinking real incomes and rising prices.
However they embraced the new year with new hopes of economic recovery but not prosperity this time engaging in traditional celebrations at open air spaces specially at Colombo Galle face green erasing good, bad and ugly memories of the previous regime’s stupid rule and Gota go Gama youth strugglers episode.
Sri Lanka’s economy finds itself in choppy waters with new Covid variant omicron, ongoing geopolitical tensions and the fear of recession.
Eminent economic experts and international financial agencies like World Bank, IMF and ADB are forecasting a severe economic contraction in the New Year2023.
They have revised the economic growth forecast to -9.3% YoY for 2022E (from -8.7% YoY previously) and -2.1% YoY for 2023E (from -3.1% previously),”
In its World Economic Outlook (WEO) released in October the International Monetary Fund (IMF) estimated the Lankan economy to contract by 8.7% last year and by 3% next year.
The World Bank in its forecast estimated a contraction of 9.2% this year and 4.2% in 2023. In September, the Asian Development Bank (ADB) lowered Sri Lanka’s growth outlook to a negative 8.8% this year as opposed to a positive 2.4% estimated in April.
ADB is also forecasting a 3.3% negative growth this year for Sri Lanka revising from a 2.5% positive growth previously estimated.
Economic analysis said although relaxation in fuel quota and supply of fuel has been consistent in 4Q2022 compared to 3Q2022 it expects the economic activities to further contract given indicators depicting highest contraction in both Manufacturing and Services.
They noted that with the current contraction in demand due to heightened inflationary pressures, the higher direct taxes to be effective from 2023 together with prevailing supply constraints in sourcing raw materials and woes in supply of electricity is expected to contract the economy in the1 H2023.
The completion of the Board Level Agreement with the IMF and other bilateral finances flowing into the country is expected to boost the economy in 2023 and economic experts expect a slight recovery in GDP due to low base effect as well.
On year-on-year basis, CCPI based headline inflation decreased to 57.2 per cent in December 2022 from 61.0 per cent in November 2022 recording the lowest reading in the second half of 2022. The Food inflation recorded at 64.4 per cent in December 2022, while the Non-Food inflation recorded at 53.4 per cent in December 2022.
Furthermore, the CCPI measured on an annual average basis, increased to 46.4 per cent in December 2022 from 42.6 per cent in November 2022.
The reserve money decreased to Rs. 1.357 trillion during the week ending December 2022 compared to Rs.1.348 trillon in the previous week mainly due to decrease in the deposits held by the commercial banks with the Central Bank.
The total outstanding market liquidity was a deficit of Rs. 361.250 bn by end of the week ending December 30 2022, compared to a deficit of Rs. 369.002 bn by the end of previous week.
The gross official reserves were provisionally estimated at US dollars 1,806 mn as at end November 2022 including the PBOC swap equivalent to around US dollars 1.4 bn, which is subject to conditionalities on usability.