COLOMBO: Sri Lanka’s cabinet has approved increasing the minimum wage by 40%, a top official said on Tuesday, to support workers struggling with living costs as the economy slowly shakes off its worst financial crisis in decades, helped by an IMF bailout.

Sri Lanka’s economy collapsed in early 2022 after its foreign exchange reserves dwindled to record lows triggering soaring inflation, currency depreciation and a default on its foreign debt. Revision of the minimum wage from 12,500 rupees ($42) to 17,500 rupees was approved by cabinet to support people living in poverty, said cabinet spokesman and Transport Minister Bandula Gunawardana. “This is a very important decision.

Under this the national daily wage will also be increased by 200 rupees,” he told a weekly briefing. The average monthly household income of the poorest 20% of the population is 17,572 rupees, while 90% of overall households had increased their expenditure due to the crisis, latest government data showed.

Helped by a $2.9 billion program from the International Monetary Fund (IMF) the island of 22 million people has seen its economy slowly stabilise with inflation reducing to 5.9% in February from a high of 70%.

But multiple energy price increases and a 3% sales tax hike in January have raised the cost of living and hit the poor hard.