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Sri Lanka hikes power prices by 66% hoping to gain IMF support

The increase comes after the government raised electricity tariff by 75 per cent last year

Sri Lanka raised electricity prices by 66 per cent on Thursday, in a move the government hopes will persuade the International Monetary Fund to provide a bailout for its crisis stricken economy.

The increase, announced by Power and Energy Minister Kanchana Wijesekera, comes after the government raised electricity prices by 75 per cent last year, and adds to the pain of Sri Lankans already struggling with inflation above 54 per cent year-on-year in January and income taxes as high as 36 per cent.

"We know that this will be hard on the public, especially the poor, but Sri Lanka is caught in a financial crisis and we have no choice but to move towards cost reflective pricing," Wijesekera told reporters.

"We hope that with this step Sri Lanka has moved closer to getting the IMF programme."

An official at the monopoly Ceylon Electricity Board confirmed the scale of the price increase.

The IMF agreed to loan Sri Lanka $2.9 billion in September to overcome its worst financial crisis in seven decades, but the deal comes with conditions that include raising taxes, removing subsidies and cutting public sector debt.

The government of President Ranil Wickremesinghe, who took over after mass protests against economic mismanagement ousted his predecessor last year, desperately needs the funds and has been courting multilateral agencies for support since taking office in July.

Wijesekera said the price increase would help the power ministry offset the gap caused by the cessation of government subsidies from January, and also help better manage long-term fuel contracts.

The government hopes to reduce tariffs by July, when it plans to revise prices again, he said.

Analysts forecast the power price hike to further increase inflation. "We are projecting inflation to increase slightly to 55.5 per cent next month but overall inflation will continue downward given the high base effect from last year," said Dimantha Mathew, head of research, First Capital Holdings.

Inflation hit a record 73.7 per cent in September last year.

"We can't bear these costs anymore," said Asela Sampath of the All Island Canteen Owners Association, a group that represents the restaurants sector frequented by middle to low-income Sri Lankans. "We ask for forgiveness from consumers, but we have no choice but to pass down these costs."