AFP

Sri Lanka’s economic meltdown will result in a record contraction of at least eight percent this year but the public could soon expect some relief from runaway inflation, the head of the country’s central bank said Thursday.

The island nation defaulted on its $51 billion foreign debt in April and is seeking an International Monetary Fund bailout after months of food, fuel and medicine shortages. 

Its 22 million people have also suffered through lengthy blackouts and spiralling cost-of-living pressures after scarcity and a currency crash drove up prices.

The Central Bank of Sri Lanka had already projected the economy could shrink a painful 7.5 percent for the calendar year, dwarfing the previous record 3.6 percent contraction in 2020 as the pandemic raged.

“But now we think it will exceed 8.0 percent,” governor Nandalal Weerasinghe told reporters in Colombo.

He said inflation — officially running at 60.8 percent — will peak at “about 65 percent” in September, followed by a gradual easing caused by lower demand and improvements in supplies.

The foreign exchange shortage that sparked the economic crisis had eased thanks to better currency inflows and lower imports, he added. 

“We are now able to finance the most essential imports such as petrol and diesel and medicines,” Weerasinghe said.

At the peak of Sri Lanka’s fuel shortages, motorists had to wait for days and sometimes weeks to top up, but strict fuel rationing has shortened queues.

Months of protests over the collapsing economy culminated in the resignation of president Gotabaya Rajapaksa, who was forced to flee his official residence after it was stormed by a huge crowd last month.

Rajapaksa is accused of mismanaging the island nation’s economy to the point where it was unable to finance even the most essential imports.

He has since travelled to Thailand and close associates have said he was desperate to return home, where he faces corruption charges that had been suspended because of his presidential immunity.

The political upheavals last month stalled talks with the IMF, but a delegation from the international lender of last resort is expected in Colombo before the end of August.

Weerasinghe said he was hopeful authorities would finalise a staff-level agreement with the Fund later this month ahead of a formal bailout deal.

Taiwan and the United States announced plans on Thursday for trade talks in the early autumn as a senior US diplomat warned Beijing will continue to squeeze the self-ruled democracy it claims as its own.

Tensions in the Taiwan Strait have soared to their highest in years after US House Speaker Nancy Pelosi visited Taipei, sparking a furious response from Beijing which launched its largest military drills around the island.

The negotiations would cover a variety of areas, including agriculture, digital trade, regulatory practices and removing trade barriers, the Office of the US Trade Representative said in a statement.

The talks “will deepen our trade and investment relationship, advance mutual trade priorities based on shared values, and promote innovation and inclusive economic growth for our workers and businesses,” said Deputy United States Trade Representative Sarah Bianchi. 

“We welcome this opportunity to deepen economic collaboration between our 2 freedom-loving countries while shaping a new model for trade cooperation in the Indo-Pacific,” Taiwan’s foreign ministry said in a tweet. 

Taipei’s representative in Washington Hsiao Bi-Khim wrote: “We welcome this announcement, and Taiwan’s ready to start!”

The United States and Taiwan share a longstanding trade and investment relationship. The island is also a crucial global supplier of some of the most advanced semiconductors, used in everything from mobile phones and laptops to cars and missiles. 

But Taiwan’s largest trading partner by far remains China, which bristled at the announcement and said it “firmly opposes this”.

“China has always opposed any official exchanges between any country and the Taiwan region of China,” Beijing’s commerce ministry spokeswoman Shu Jueting told reporters on Thursday, adding that the matter concerned China-US relations.

Beijing views Taiwan as its own territory to be seized one day, by force if necessary, and last year 42 percent of Taiwan’s exports went to China and Hong Kong compared with 15 percent for the United States.

Washington diplomatically recognises Beijing over Taipei, but maintains de facto relations with Taiwan and supports the island’s right to decide its future.

– ‘Intimidate and coerce’ –

The United States has said its position on Taiwan remains unchanged and has accused China of threatening peace in the Taiwan Strait and using the visit by Pelosi as a pretext for military exercises.

Its top envoy in East Asia on Thursday said Beijing will likely ramp up pressure on Taiwan in the coming months after the drills.

“While our policy has not changed, what has changed is Beijing’s growing coercion,” Daniel Kritenbrink, assistant secretary of state for East Asian and Pacific affairs, told reporters on a teleconference call.

“These actions are part of an intensified pressure campaign… to intimidate and coerce Taiwan and undermine its resilience,” he said.

The envoy said Washington would respond to China’s aggression with “calm, but resolute steps” to keep the Taiwan Strait open and peaceful.

His comments come after a top US naval commander said this week that Washington and its allies must contest China’s ballistic missile fire over Taiwan, which he called a “gorilla in the room”.

China’s exercises included firing multiple ballistic missiles into waters off Taiwan — some of the world’s busiest shipping routes — which was the first time China has taken such a step since the mid-1990s.

Taiwan has staged its own drills simulating a defence against invasion and on Wednesday displayed its most advanced fighter jet in a rare nighttime demonstration in the wake of China’s moves around the island.

“In the face of the threat from Chinese communist forces’ recent military exercises, we have stayed vigilant while establishing the concept of ‘battlefields everywhere and training anytime’… to ensure national security,” Taiwan’s air force said in a statement. 

Railway and postal staff, dockers too. Britain’s workers are striking in vast numbers as decades-high inflation erodes the value of wages at a record pace.

Britain’s train network faces further heavy disruption Thursday and Saturday in major walkouts that follow the sector’s biggest strike action for 30 years already this summer.

Tens of thousands of staff are expected to strike over the two days, leaving a skeleton train service that will hit holidaymakers and commuters, even if home-working continues for many office staff after Covid restrictions were lifted.

London’s underground railway, the Tube, will be hit by a strike Saturday, ahead of an eight-day stoppage starting Sunday by dockers at Felixstowe, Britain’s largest freight port that is situated in eastern England.

“We will continue to do whatever is necessary to defend jobs, pay and conditions during this cost-of-living crisis,” Sharon Graham, head of major British union, Unite, said this week.

Official data Wednesday showed UK inflation at a 40-year-high above 10 percent, as soaring food and energy prices hurt millions of Britons.

– Inflation to keep rising –

And the situation is set to worsen under a new prime minister, as under-fire Boris Johnson prepares to step down.

The Bank of England has forecast inflation to top 13 percent this year, tipping the British economy into a deep and long-lasting recession.

“This record fall in real wages demonstrates the vital need for unions like Unite to defend the value of workers’ pay,” Graham said, while hitting out at suggestions, including from BoE governor Andrew Bailey, that pay rises were fuelling inflation.

“Wages are not driving inflation,” she insisted ahead of the latest UK inflation data that showed rocketing food prices were the main factor behind July’s spike.

Inflation has soared worldwide this year also on surging energy prices, fuelled by the invasion of Ukraine by major oil and gas producer Russia.

– Pay deals –

Some proposed strikes planned for the British summer have been halted after unions and companies agreed pay deals at the eleventh hour.

But while British Airways ground staff and plane refuellers at Heathrow airport have scrapped proposed walkouts, other sectors are holding firm.

More than 115,000 British postal workers employed by former state-run Royal Mail plan a four-day strike from the end of August. 

Telecoms giant BT will face its first stoppage in 35 years and walkouts have recently taken place or are soon to occur by Amazon warehouse staff, criminal lawyers and refuse collectors.

Major UK business lobby group, the CBI, this week acknowledged workers’ ongoing “struggle with rising costs like energy prices” and said employers were “doing their level best to support staff”.

It also claimed, however, that “the vast majority” of companies “can’t afford large enough pay rises to keep up with inflation”.

Regarding the part-privatised British railway sector, unions accuse Transport Secretary Grant Shapps of not helping to resolve the impasse.

Shapps is part of the Conservative government that recently amended a law to allow agency staff to help fill gaps caused by strikes, further angering the RMT railway union.

According to Unite, London’s luxury department store Harrods has informed staff that it stands ready to use agency staff in the event of strike action by its workers.

Analysts are meanwhile forecasting sector-wide stoppages to last beyond the summer as inflation keeps on rising.

It comes as teachers and health workers have hinted at possible walkouts should they not receive new pay deals deemed acceptable.