Sri Lanka economic crisis: Usable forex reserves now down at under $50 mn

Sri Lankan Finance Minister said discussions with several countries to obtain bridging finance are underway

Sri Lanka finance minister Ali Sabry on Wednesday waved a metaphorical red flag in parliament as the troubled nation's usable foreign exchange reserves dropped below $50 million, increasing worry over its ability to provide food, fuel and other essential goods for citizens, and repay massive foreign debts. 

Sabry — who quit April 4, a day after being appointed, only to return — warned 'we have been over-spending two and a half times'. "In 2021 total income was 1,500 billion (Sri Lankan) rupees… expenditure was 3,522 billion rupees… we were living (beyond) our means…" he said, cautioning lawmakers that aid from the World Bank or the IMF would not solve deep-rooted problems. 

 

"The IMF is not Aladdin's magic lamp," he said.

Sri Lanka is on the brink of bankruptcy and has suspended payments on foreign loans, which total over $50 billion with an estimated $8.6 billion due this year.

Foreign exchange reserves were an estimated $2.31 billion in February. By March it had dropped to $1.93 billion. 

Overall reserves have crashed by 70 per cent in two years, Reuters reported.

Last week the World Bank said it would provide $600 million in aid to help Sri Lanka meet payment requirements for essential imports.

Sri Lanka crisis will last at least two more years, says govt

Sri Lanka will have to endure its unprecedented economic hardships for at least two more years, the country's finance minister said while warning of an imminent cash crunch.

"People should know the truth. I don't know if people realise the gravity of the situation," Finance Minister Ali Sabry said.

"We won't be able to resolve this crisis in two years, but the actions we take today will determine how much longer this problem will drag."

Public anger has sparked sustained protests demanding the government’s resignation.

‘Looking to replace unrealistic budget, extend WB aid’

Sri Lanka plans to replace its current "unrealistic" budget and is in talks with the World Bank to extend its support by $300 million to $700 million, the country's finance minister said.

The island nation, hit hard by Covid-19 and short of revenue after steep tax cuts by President Gotabaya Rajapaksa's government, is critically short of foreign exchange and has sought an emergency bailout from the International Monetary Fund.

Rampant inflation and shortages of imported food, fuel and medicines have led to weeks of protests that have occasionally turned violent.