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Sri Lanka says it won’t rush to IMF despite rising economic risks -Breaking

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© Reuters. FILE PHOTO – People pass the entrance to the Sri Lanka Central Bank, Colombo (Sri Lanka), March 24, 2017. REUTERS/Dinuka Liyanawatte/File Photo

Devjyot and Uditha Jayasinghe

COLOMBO (Reuters – Sri Lanka’s foreign reserves are falling, imports are stumbling and experts and leaders of opposition warn that it is too late to stop a sovereign default. This would cause further economic chaos.

However, Finance Minister Basil Rajapaksa’s primary focus is on helping the country shake off the COVID-19 impact before seeking assistance from international organizations like the International Monetary Fund.

Milinda Rajapaksha is the additional director general of the media ministry. She works closely alongside the finance minister.

Rajapaksha stated that it could take four to five more months to resolve issues such as local supply chain problems and start businesses. This, along with a rebound in tourism and remittances, would help stabilize the economy.

He said to Reuters, “You need to take the external debt crisis apart.” That’s exactly what we will do. Is there a deal like the IMF that we will consider? Will we work together with our supporters and neighbours to get more loans and swaps?

According to the Central Bank of Sri Lanka data released this week, Sri Lanka’s foreign currency reserves have dropped to $2.36 Billion.

Citi Research released a Monday note stating that there is no confidence in Sri Lankan’s foreign repayment situation and that foreign currency reserves are falling faster than predicted.

The CBSL reports that Sri Lanka’s outstanding sovereign bonds total $12.55Billion, of which $1 Billion will mature in July. The island’s government will have to pay back debt of approximately $4 billion this year.

Citi Research reported that they will stick with their base-case scenario, which states international bonds should be restructured in July.

According to the CBSL, Wednesday’s statement stated that discussions about debt restructuring are not necessary as the government “would be able” to settle its sovereign debt without interruption or default.

The central bank stated in a statement that “the government and the CBSL have committed to honor all future debt obligations.”

“VERY DANGEROUS LEVEL”

Import-dependent country with 22 million citizens, this nation is currently unable to import goods due to a lack of dollars. It typically pays $1.6 billion per month for fuel and essential foodstuffs.

Since foreigners cannot get access to the main port in Sri Lanka, Colombo has seen thousands of empty containers with rice and sugar for several weeks.

Colombo’s streets are witnessing an increase in the prices for everything, from fuel and milk powder to mobile phones and auto spares.

The headline inflation rose to 14.2% in less than 10 years. According to government data, food inflation was at 25% in January.

Sri Lanka has around $800 Million in foreign currency reserves that can be used, according to Murtaza Jafferjee (Managing Director at stock broker JB Securities). These funds could run out within weeks.

He stated that “the amount of reserves have fallen significantly to a very very dangerous level.”

Sri Lankan government sought assistance from India for a $1 Billion credit line to help meet this shortfall. The government is in negotiations with Australia and Pakistan for $200 million credit lines each to import rice, cement and medicines.

President Gotabaya Rajapaksa requested debt relief and help to import. Sri Lanka annually imports goods worth $3.5 billion from China each year.

POLITICAL POTENTIAL FUTURE

The government, led by the influential Rajapaksa family, faces a choice between moving immediately to restructure its debt or continuing to scrape by even as it hits ordinary Sri Lankans, said Nishan de Mel, Executive Director of Verité Research think-tank.

He said, “It is really about how much pain society is willing to bear before the government changes the course.” It isn’t sustainable.

The IMF said Thursday that the Sri Lankan government hadn’t initiated financial assistance talks.

Gerry Rice, spokesperson for the IMF said that they are open to discussing options and continue closely monitoring economic and policy developments.

Rajapaksa said that Rajapaksa is a veteran lawyer and finance minister. However, Rajapaksha stated that the financial decision whether to apply to the IMF or any other external agency will be influenced by political factors.

He is the older brother of Mahinda Rajapaksa and the President. The politician was elected to power in the financial portfolio.

Rajapaksha, speaking of the finance minister, said that “his political future is at risk.” And his party’s future lies on the line.

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