Colombo, August 3:

The millions of dollars of foreign funds that has flowed into Sri Lanka since last year’s tsunami has helped stabilise the country’s economy, the International Monetary Fund (IMF) said — but also produced an undesirable side effect: surging inflation.

In an annual review of Sri Lanka’s economic performance released in Washington, the IMF said foreign aid has steadied Sri Lanka’s economic outlook in the wake of the December 26 tsunami, which killed 31,000 people in the country and affected a million others. But the foreign aid also has caused prices to rise. A loaf of bread that cost 10 cents has gone up to 12 to 13 cents. A kg of mutton has gone up by 50 cents. Inflation this year is expected to climb to an annual rate of 14 per cent, nearly twice the rate in 2004.