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Ethiopia and Sri Lanka are expected to be hyper-inflationary in 2022
Publication date: 10 Oct 2022
gx In brief INT2022-14
Key points
Ethiopia and Sri Lanka will most likely become hyper-inflationary economies in 2022. Entities with a functional currency of the Ethiopian Birr and Sri Lankan Rupee should prepare themselves to apply IAS 29, ‘Financial reporting in hyper-inflationary economies’, for annual and interim accounting periods ending on or after 31 December 2022.
What is the issue?
Ethiopia
The World Economic Outlook issued in April 2022 by the International Monetary Fund (‘IMF’) shows that three-year cumulative inflation in Ethiopia is expected to exceed 100% at 31 December 2022. Local data provided by the Central Statistics Agency
supports the IMF’s projections. Given the high level of inflation during 2022, IAS 29 will most likely be applicable for annual and interim reporting periods ending on or after 31 December 2022.
Sri Lanka
Local data provided by the Central Bank of Sri Lanka
shows that the three-year cumulative inflation was 93.06% for National CPI (as of 31 August 2022). Given the significant increase in inflation during 2022, and assuming the current level of inflation continues for the remainder of 2022, the three-year cumulative inflation is expected to exceed 100% by the end of 2022. Based on these projections, IAS 29 will most likely be applicable for annual and interim reporting periods ending on or after 31 December 2022.
What is the impact and for whom?
Entities with a functional currency of the Ethiopian Birr and Sri Lankan Rupee should prepare themselves to apply IAS 29 for annual and interim accounting periods ending on or after 31 December 2022. IAS 29 needs to be applied as if the economy had always been hyper-inflationary.
Multinational companies that have subsidiaries with the Ethiopian Birr and Sri Lankan Rupee will also be impacted. The financial statements of a subsidiary entity that has the functional currency of a hyper-inflationary economy need to be restated, in accordance with IAS 29, before being included in the consolidated financial statements. Comparative amounts presented previously in a stable currency are not restated.
The projections that Ethiopia and Sri Lanka will become hyper-inflationary economies is still to be confirmed by updated data expected to be received during the remaining quarter of 2022. Further communication will be provided once the hyper-inflationary status of these economies for 2022 has been confirmed.
Where do I get more details?
For more information, please contact Gary Berchowitz or Tatiana Medvedeva
1 https://www.statsethiopia.gov.et
PricewaterhouseCoopers LLP. This content is copyright protected. It is for your own use only - do not redistribute. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under licence.
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