Sri Lanka’s foreign reserves fall below $50 million
Colombo, May 4 (EFE).- Sri Lanka’s usable foreign currency reserves have dropped to less than $50 million and the government revenue has plummeted to a record low of 8.7 percent of the country’s GDP, the finance minister said on Wednesday.
The island nation is facing its worst economic crisis since gaining independence from the British in 1948.
Its 22 million inhabitants are facing an acute shortage of medicines, foods, fuel, and cooking gas owing to a scarcity of US dollars to import them.
Revealing the grim reality of the economic situation, Finance Minister Ali Sabry said the country may need around 2 years to come out of the current crisis.
“Our liquid reserves, usable reserves, are less than 50 million US dollars,” Sabry told parliament.
“People should know that. Sri Lanka is facing the worst economic crisis in history,” he added.
Sri Lanka’s foreign reserves plummeted last year after the country’s central bank used them to repay foreign loans amid unabated imports despite the bank’s import ban policies.
Last month, a delegation led by Sabry held talks with the International Monetary Fund (IMF) for a program to help the $84.5 billion economy to come out of the current crisis.
Sabry said that the country may need around six months to conclude a deal with the IMF.
Sri Lanka has to restructure its debt in order to qualify for an IMF program. The country has already suspended repayment of foreign loans due to the foreign exchange crunch.
“Once we restructure the loan, we will try to get an IMF loan. I can’t promise the time frame, but practically it will take around six months,” Sabry explained.
The government is in the process of selecting debt advisors and appointing them within the next two weeks to start debt restructure talks with its creditors.
Sabry also said the government revenue had fallen to around 8.7 percent of the GDP – its lowest since independence – from a high of 24 percent a few years ago.
The finance minister attributed the current crisis to a tax cut announced soon after President Gotabaya Rajapaksa came into power in November 2019 along with a delay in seeking IMF assistance to tackle the crisis.
“I am not sure if we could resolve this crisis even in two years. Whether we can resolve this crisis in 2 years or 10 years, it all depends on us,” Sabry said.
The finance minister said he was planning to present a fresh budget to increase income taxes in the near future as the island nation’s expenditure has jumped to 3.522 billion Sri Lankan rupees ($9.96 million) compared to its revenue of 1.464 billion amid the impact of the Covid-19 pandemic.
The finance minister’s remarks come amid youth-led protests calling for the resignation of Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksq, for economic mismanagement.
Apart from declining forex reserves, Sri Lanka’s inflation also jumped to a record 30 percent in April and the rupee has depreciated over 80 percent since Mar. 7 after the central bank allowed flexibility in the exchange rate.
The central bank has almost doubled its key interest rates to curb inflation and ease pressure on the currency. EFE