Sri Lanka declares an economic emergency to contain food prices as the forex crisis worsens

Sri Lankan President Gotabaya Rajapaksa has declared an economic emergency to contain soaring inflation after a steep fall in the value of the country's currency caused a spike in food prices.

President Rajapaksa on Tuesday declared the state of emergency under the public security ordinance to prevent the hoarding of essential items, including rice and sugar. The emergency came into effect at midnight on Tuesday.

"The president has promulgated emergency regulations under the Public Security Ordinance on the supply of essential goods," presidential spokesman Kingsley Ratnayake told reporters.

The government has appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.

The military will oversee the action, which gives power to officials to ensure that essential items, including rice and sugar, are sold at government-guaranteed prices or prices based on import costs at customs and prevents the hiding of stocks, Ratnayake said.

The emergency move followed sharp price rises for sugar, rice, onions and potatoes, while long queues have formed outside stores because of shortages of milk powder, kerosene oil and cooking gas.

The wide-ranging measure is also aimed at recovering credit owed to state banks by importers.

In recent weeks, the prices of most essential goods have been skyrocketing due to the falling local currency and high global market prices driven by the COVID-19 pandemic. The government blames traders for hoarding.

The Sri Lankan rupee has fallen by 7.5 per cent against the US dollar this year.

The Central Bank of Sri Lanka recently increased interest rates in a bid to shore up the local currency.

According to bank data, Sri Lanka's foreign reserves fell to USD 2.8 billion at the end of July, from USD 7.5 billion in November, 2019 when the government took office, and the rupee has lost more than 20 per cent of its value against the US dollar in that time.

Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID-19 cases and deaths which has hit tourism, one of its main foreign currency earners.     

Partly as a result of the slump in tourist numbers, Sri Lanka's economy shrank by a record 3.6 per cent last year. The country is currently under a 16-day curfew until Monday because of a jump in COVID-19 cases.