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COLOMBO: Sri Lanka will completely stop printing money to control a rapid rise in commodity prices, its prime minister said on Tuesday, with inflation expected to reach 60% this year.

The cash-strapped country of 22 million is in the grip of its worst economic crisis in decades and has been unable to pay for essential imports for months due to a severe dollar crisis caused by poor economic management and the consequences of the COVID-19 pandemic on its tourism. – dependent economy.

Extreme shortages of fuel, food and medicine have shut down many services and sparked mass protests that have continued since March. The island nation has been forced to close schools and stop providing fuel to all but essential services.

Consumer prices rose 54.6% in June from a year earlier, with transport jumping 128% from the previous month and food 80%.

“Our plan is to control inflation. By the end of this year, inflation will reach 60%,” Prime Minister Ranil Wickremesinghe told parliamentarians.

“In 2023, we will have to print money with restrictions several times. But by the end of 2024, we intend to stop printing money altogether.

Wickremesinghe announced the planned measures after last week’s complicated bailout talks with the International Monetary Fund.

The prime minister, who took office in May and is also finance minister, said the plan aimed to reduce the rate of inflation to between 4 and 6% by 2025.

Sri Lanka faces negotiations with the IMF as a “bankrupt country”, Wickremesinghe said, as he outlined a roadmap to emerge from the crisis. The government plans to submit its debt restructuring plan for IMF approval by the end of August.

The cessation of money printing is in line with the fund’s expectations.

“The IMF won’t like to print money; if they are to comply with the IMF, (the) printing of new banknotes should be avoided,” Murtaza Jafferjee, an economist and chairman of the Colombo-based think tank Advocata Institute, told Arab News.

“Printing money means that the central bank finances the government; as part of the agreement with the IMF, we will have to enact the new law on the monetary law which will limit the financing of the government so that it stops automatically.

The inflation rate, he said, could be even higher than expected.

“It may get worse if we have other supply chain blocks or if fuel prices go up further.”

One solution that could bring faster relief than the IMF rescue loan – which can take months – could be tourism, a key source of Sri Lanka’s foreign exchange reserves.

In 2019, the South Asian country welcomed more than 1.9 million tourists. As COVID-19 restrictions have upended the hospitality industry, the number has fallen to less than 200,000 last year. But it is slowly picking up, as 380,000 tourists have already arrived in the country in the first half of 2022, according to the Sri Lanka Tourism Development Authority.

“We need to make sure tourism recovers strongly in the second half,” Jafferjee said.

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