Sri Lankan Finance Minister Ali Sabry told parliament on Wednesday that the country’s usable foreign exchange reserves were below $50 million.
Sabry told parliament that Sri Lanka should have sought International Monetary Fund (IMF) assistance much earlier and that entering an IMF program would take at least six months, Xinhua reports the news agency.
The government should also have floated the rupee earlier, he said.
The Minister of Finance added that discussions with several countries to obtain bridge financing are underway.
The minister said that Sri Lanka’s usable foreign reserves stood at $7 billion at the end of 2019.
Pointing out that the government’s tax revenue has shrunk to 8.7% of gross domestic product, Sabry added that the 2022 budget is no longer realistic and that the government hopes to submit a new budget proposal to parliament soon.
Sri Lanka is suffering from a shortage of foreign exchange, with its reserve assets standing at around $1.9 billion at the end of March, including $1.7 billion in foreign currency reserves.
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 serious 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.
A severe shortage of foreign currency prevented the Rajapaksa government from paying for essential imports, including fuel, leading to debilitating power cuts lasting up to 1 p.m.
Ordinary Sri Lankans also face shortages and runaway inflation, after the country sharply devalued its currency last month ahead of talks with the International Monetary Fund (IMF) for a loan scheme.
Critics say the roots of the crisis, the worst in decades, lie in the economic mismanagement of successive governments that created and maintained a twin deficit – a budget deficit alongside a current account deficit.
Sri Lanka had been affected by sovereign default as the remaining foreign exchange reserves of US$1.9 billion as of March 2022 would not be sufficient to pay the country’s external debt obligations for 2022, with US$4 billion to repay.
A $1 billion international sovereign bond repayment is also due by the government in July 2022. According to Bloomberg, Sri Lanka has a total of $8.6 billion in repayments due in 2022, including local debt. and external debt.
In April 2022, Sri Lanka announced it was in default, making it the first sovereign default in Sri Lanka’s history since its independence in 1948.
(with contributions from IANS)
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Posted: Wednesday, May 4, 2022, 3:40 PM IST