Sri Lanka's negative inflation

Sri Lanka's economic crisis and negative inflation have drawn global attention. As of November, the country's annual inflation rate dropped to minus 2.1 per cent, the lowest since 1961. This negative trend is attributed to economic contraction and a decline in demand.

Inflation generally reflects imbalances between supply and demand. In Sri Lanka's case, negative inflation underscores the severity of the crisis. In 2022, the country faced an unprecedented economic meltdown. To manage shortages of essential goods and inflation peaking at nearly 70 per cent, the government secured a $2.9 billion bailout from the International Monetary Fund (IMF).

Falling prices of fuels and food, coupled with declining purchasing power, are the primary drivers of Sri Lanka's recent negative inflation.

Negative inflation, however, can adversely affect production and investment.

Businesses may limit production, fearing further price declines. A reduction in tax revenue could strain the national budget. However, lower prices and financial incentives may present opportunities to positively impact the economy.

In Bangladesh, inflation currently stands at 10.87 per cent. Learning from Sri Lanka's experience, Bangladesh must take steps to maintain economic stability. It is crucial to focus on sustainable growth, effective foreign exchange reserve management, and timely repayment of external debts instead of resorting to unnecessary loans.

Sri Lanka's negative inflation is a reflection of a crisis. While it has temporarily reduced costs for the public, achieving long-term economic recovery and stability remains a significant challenge.

Developing countries like Bangladesh should learn from Sri Lanka's experience and adopt well-planned

economic policies to ensure resilience and sustainable growth.

Rawshan Jahan

Deputy General Manager

Sonali Bank PLC

[email protected]