COLOMBO – Sri Lanka on Tuesday raised fuel and transport prices, a long-awaited move in response to its weakening economic crisis, but the rise is bound to push up inflation, at least in the short term.
Power and Energy Minister Kanchana Wijesekera said in a message on Twitter that petrol prices would rise by 20% -24% and diesel prices by 35% -38% immediately.
“The cabinet has approved the amendment of transport and other service charges accordingly,” he said.
Wijesekera added that people would be encouraged to work from home “to reduce fuel consumption and manage the energy crisis” and that public sector officials would only work from the office under the direction of the head of the organization.
Food and transportation price increases will flow through food and other commodities, economists say.
According to official data released on Monday, annual inflation in the island nation rose to a record 33.8% in April, compared to 21.5% in March.
Sri Lanka has been in its worst economic crisis since independence, with severe foreign exchange deficits halting imports and the country suffering from shortages of fuel, medicine and electricity.
The financial crisis stemmed from the convergence of the COVID-19 epidemic in the tourism-dependent economy, rising oil prices and tax cuts by President Gotabaya Rajapaksa and his brother Mahinda’s government, who resigned as prime minister this month.
Economists say rising fuel and electricity prices will be needed to plug a huge gap in government revenue, but agree that this will lead to short-term pain.
Petrol prices have risen by 259% and diesel by 231% since October last year, said Dhannath Fernando, an analyst at the Colombo-based think tank Advocate Institute. He said the prices of food and other necessities have gone up.
“Poor people will suffer the most. The solution is to establish a cash transfer system to help the poor and increase efficiency as much as possible. ”
Prime Minister Ranil Wickremesinghe, who replaces Mahinda Rajapaksa after violence broke out between government protesters and protesters earlier this month, said last week: “In the short term we have to face more difficult times. Inflation is likely to rise further. ”
(Reporting by Udita Jayasinghe and Devajyot Ghoshal in Colombo; Editing by Raju Gopalakrishnan)