Swathes of Sri Lanka faced prolonged power cuts on Wednesday as a deepening economic crisis disrupted markets and rattled businesses, with the government unable to pay for fuel deliveries due to a currency shortage, an official said.
The country of 22 million people is asking for help from the International Monetary Fund (IMF), after sliding into its worst economic crisis in decades due to mistimed tax cuts, the impact of the coronavirus pandemic COVID-19 and historically weak public finances. . Sri Lankan stocks fell more than 7%, prompting the Colombo Stock Exchange to suspend trading twice.
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Foreign exchange reserves have fallen by 70% over the past two years and were down to just $2.31 billion in February, leaving Sri Lanka struggling to import essentials including food and fuel.
Janaka Ratnayake, chairman of Sri Lanka’s Public Utilities Commission, said the prolonged power cuts were partly the result of the government’s inability to pay $52 million for a 37,000 tonne cargo of diesel awaiting unloading. .
“We have no hard currency to pay,” Ratnayake told Reuters. “It is reality.”
Power outages could increase further over the next two days, he said.
Power generation has also been hit by low water levels at hydroelectric facilities during the current dry season, Sri Lanka’s energy ministry said. Part of the water from the hydroelectric reservoirs is retained for irrigation before new cultivation and domestic use, the ministry said.
To find a way out of the crisis, Finance Minister Basil Rajapaksa will travel to Washington in April for talks with the IMF, sources familiar with the ongoing talks told Reuters.
An IMF assessment released on Friday said Sri Lanka was experiencing a combined balance of payments and sovereign debt crisis, and would need a “comprehensive strategy” to make its debt sustainable.
If Sri Lanka gets an IMF program, it would be its 17th financial bailout from the global lender.
FEWER PEOPLE, FEWER BEERS
Harpo Gooneratne, a restaurateur in Colombo, Sri Lanka’s main city, said shortages of diesel made it difficult for his 10 restaurants to operate during power cuts, although some of them had their own generators.
“It’s crazy,” said Gooneratne, who employs 150 people at his establishments. “It’s an unprecedented situation and the worst thing is that we don’t know how long it will last.”
The deteriorating power situation will hit companies already struggling, especially exporters who have stalled orders and limited ability to absorb cost increases, said Dhananath Fernando, an analyst at the Advocata Institute think tank in Colombo. .
“It will further harm Sri Lanka’s growth and threaten foreign exchange earnings which are crucial for improving reserves, repaying debt and paying for essential imports,” Fernando said. Sri Lanka’s economy grew slower than expected by 1.8% in the fourth quarter of fiscal 2021, bringing its full-year growth to 3.7%, according to government data. published on Tuesday. At his restaurants in Colombo, Gooneratne said the customer base has dropped by around 30%.
“Even when people go out, they watch their spending,” he said. “The person who drank two beers before will only have one.”