Sri Lanka is on the brink of bankruptcy – The Diplomat

Sri Lankan rickshaw drivers line up to buy petrol near a gas station in Colombo, Sri Lanka, Wednesday, April 13, 2022.

Credit: AP Photo/Eranga Jayawardena

Sri Lanka’s economy is in dire straits, with its usable foreign exchange reserves falling to less than $50 million, the country’s finance minister said on Wednesday.

Ali Sabry was addressing parliament after returning to Sri Lanka after talks with the International Monetary Fund. He said any IMF rescue package, including a rapid financing instrument needed to urgently address shortages of essential goods, would depend on debt restructuring negotiations with creditors and would take six months to implement. .

Sri Lanka is on the verge of bankruptcy and has suspended repayments of its foreign loans. Its economic miseries caused a political crisis, with the government facing protests and a no-confidence motion in parliament.

The country must repay $7 billion this year of the $25 billion in foreign loans it must repay by 2026.

“There is a grave risk ahead of all of us,” Sabri said. He said Sri Lanka’s reserves stood at $7.6 billion at the end of 2019 and fell to $5.7 billion at the end of 2020 as payments exceeded foreign exchange inflows to the country. middle of the pandemic.

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Reserves fell to $3.1 billion at the end of 2021 and to $1.9 billion at the end of March, he said. With foreign currency in short supply thanks to falling tourism and other income, official reserves have been tapped to pay for the import of essentials including fuel, gas, coal and medicine from August 2021 .

Most of Sri Lanka’s remaining reserves, including a $1 billion equivalent SWAP facility from China, cannot be used to settle dollar-denominated payments, he said.

Sabri’s comments came a day after the country’s main opposition party issued a no-confidence motion aimed at ousting Prime Minister Mahinda Rajapaksa and his cabinet.

The opposition United People’s Force blames the government for failing in its constitutional duty to ensure a decent standard of living. He accuses senior government officials of excessively printing money, harming agricultural production by banning chemical fertilizers to make production entirely organic and minimizing import costs, failing to order COVID-19 vaccines. 19 in time and buy them later at higher prices.

No date has yet been announced for a vote on the motion of no confidence.

The currency crisis has limited imports and caused severe shortages of essential goods such as fuel, cooking gas, medicine and food. People have to queue for hours to buy what they can and many go home with little or nothing of what they were looking for.

Protests have spread demanding the resignation of Mahinda Rajapaksa, who heads an influential clan that has held power for most of the past two decades, and his younger brother, President Gotabaya Rajapaksa. The occupation of the entrance to the president’s office by protesters demanding the resignation of the Rajapaksas was in its 26th day on Wednesday.

So far, the Rajapaksa brothers have resisted calls to resign, although three other Rajapaksa out of the five lawmakers resigned from their cabinet posts in mid-April.

Sabri said Sri Lanka was in the process of appointing legal and financial advisers for negotiations on restructuring its external debt.

“It is an economic crisis. The economic crisis has created a political crisis. It is important to resolve the political crisis in order to find solutions to the economic crisis,” Sabri said.

Janet E. Fishburn