Sri Lanka's government announced that it has approved a 40 percent increase in the minimum wage to support workers struggling with the cost of living as the country slowly recovers from its worst financial crisis in years, aided by an IMF bailout.

Sri Lanka's economy collapsed in early 2022 after foreign exchange reserves fell to record lows, triggering high inflation, currency depreciation and a default on foreign debt.

Cabinet spokesperson and Transport Minister Bandula Gunawardana said the increase in the minimum wage from 12,500 rupees (US$42) to 17,500 rupees was approved by the cabinet to support people living in poverty.

"This is a very important decision. Accordingly, the national daily wage will also be increased by 200 rupees."

Recent government data showed that the poorest 20 percent of the population had an average monthly household income of 17,572 rupees and 90 percent of the population had increased expenses due to the crisis.

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In the island nation of 22 million people, inflation in the 70 percent range fell to 5.9 percent in February with the help of the IMF's $2.9 billion program, suggesting the economy is slowly stabilizing.

But energy price hikes and a 3 percent sales tax increase in January have pushed up the cost of living and hit the poor hard. University students and trade unions have been protesting in the capital Colombo for months demanding the government cut costs.