Sri Lanka’s 2023 budget would aim to reduce the fiscal deficit to 6.8 per cent in 2023 from the projected 9.9 per cent in 2022, a senior Cabinet Minister said on Tuesday, ahead of the visit by the IMF delegation for a bailout package to the crisis-hit island nation.

Sri Lanka is in the midst of an unprecedented economic crisis that has led to severe shortages of fuel and other essentials, leading to long serpentine queues in front of filling stations.

The island nation of 22 million also witnessed a significant political churn following massive mass protests that forced former president Gotabaya Rajapaksa to flee the country and resign from his post.

"Sri Lanka is planning to cut the budget deficit to 6.8 per cent of gross domestic product in 2023 from an expected 9.9 per cent in 2022," Bandula Gunawardena, the Cabinet spokesman and Minister of Information said on Tuesday.

“The Cabinet of ministers has approved a fiscal framework for 2023-2025. Sri Lanka is facing the worst fiscal crisis in its history,” he said.

“We have to eventually bring down the deficit to 5 per cent of the GDP to manage debt, reduce money printing and have low inflation,” Gunawardena said.

The deficit target was announced ahead of the visit by the IMF delegation which will arrive here tonight. They are to resume talks on reaching the staff level agreement between August 24 and 31.

The government’s statistics office said on Monday that the overall rate of inflation as measured by the National Consumer Price Index on a year on year basis had gone up to 66.7 per cent in July over the 58.9 recorded in June.

“This was mainly due to the higher price levels prevailing in both food and non-food groups. The food group increased to 82.5 in July 2022 from 75.8 in June 2022,” the release said.

In its latest assessment, the World Bank has said that Sri Lanka has been ranked 5th with the highest food price inflation in the world.

Sri Lanka is ranked behind Zimbabwe, Venezuela, and Turkey, while Lebanon leads the list.

The World Bank said record high food prices have triggered a global crisis that will drive millions more into extreme poverty, magnifying hunger and malnutrition while threatening to erase hard-won gains in development.

The war in Ukraine, supply chain disruptions, and the continued economic fallout of the COVID-19 pandemic are reversing years of development gains and pushing food prices to all-time highs.

Rising food prices have a greater impact on people in low- and middle-income countries since they spend a larger share of their income on food than people in high-income countries. This brief looks at rising food insecurity and World Bank responses to date.