Sri Lanka’s foreign exchange reserves dropped 16.1 per cent to $1.93 billion in March from a month earlier, the central bank said Thursday, as the island nation struggles through its worst economic crisis in decades.
Protests have erupted over the shortage of food, fuel and other essential commodities; last week thousands took to Colombo streets to demand president Gotabaya Rajapaksa’s resignation, prompting clashes outside his home that left 15, including police personnel, injured and led to a brief state of emergency. An estimated $8.6 billion in debt payments fall due this year, according to an analysis by Bloomberg, and rapidly falling reserves raise questions about Sri Lanka’s ability to pay even a part of this sum.
Sri Lanka had about $2.3 billion of foreign reserves in February.
The country also faces a test of global investor confidence later this month when interest payments on a 2023 dollar bond and 2028 note fall due; the two combined amount to $78.2 million.
“To get out of the crisis, the quick establishment of an effective government should be the first priority. Clinching a deal with the International Monetary Fund (IMF) should be next,” Bloomberg Economics’ economists Ankur Shukla and Abhishek Gupta wrote in a note Tuesday.
Sri Lanka is due to hold talks with the IMF this month and earlier today the president also named a team of experts to advise the government on dealing with this crisis.
The country has also reached out to India and China for help. The Indian government responded swiftly with lines of credits totalling over $2 billion to help buy food, fuel and other essentials. Shipments of petrol and diesel have already been delivered, with another of rice due soon.But ahead of the talks with the IMF the Sri Lanka government received another setback after finance minister Ali Sabry quit just 24 hours after replacing president Rajapaksa’s brother Basil.
Sabry today said Sri Lanka must restructure a $1 billion sovereign debt that falls due in July and said help must be sought not just from the IMF but also the World Bank and the Philippines-headquartered Asia Development Bank. “… there is no other solution that I can see.”
The country has yet to appoint a replacement for Sabry.
Rajapaksa, meanwhile, has refused to step down despite his government losing its majority. An offer to opposition parties to form a ‘unity’ government was dismissed as a ‘sham’. The opposition insists the Rajapaksa government must go ‘starting with the president’.
Pressure was ramped up Tuesday after two ruling coalition lawmakers warned of ‘anarchy’ sans an interim government.