June 29, 2014 (LBO) – Sri Lanka’s inflation would be 2.8 percent in June and the country now had strong economic growth and a stable exchange rate, Treasury Secretary P B Jayasundera said. Sri Lanka is recovering from a balance of payments crisis triggered in 2011 after the state manipulated energy prices with bank loans which were ultimately accommodated with central bank credit (printed money) through sterilized foreign reserve sales.
The rupee fell from 110 to 130 to the US dollar in the wake of the crisis.
Sri Lanka has been prone to high inflation and balance of payments trouble since shortly after 1951 when a hard peg was broken by then finance minister J R Jayewardene and a money printing central bank was set up to join then now collapsed Bretton Woods soft-peg system.
The forex shortages also gave an opportunity for trade-deficit Mercantilists and autarkist- nationalists to raise their head and seek rents from protectionism and import substitution, denying the less affluent affordable access to products especially foods, critics say.
Jayasundera told a forum of Sri Lanka’s key exporters and importers Friday that as he walked into the forum he got a text message th