Sri Lanka has a “dangerous” situation due to ongoing unrest. CNBC’s Shanta Devarajan, the former chief economist in the South Asia regions of the World Bank, stated that Sri Lanka must avoid “disorderly default”.

Shortages of food and fuel, along with record inflation and regular blackouts, have brought thousands of Sri Lankans to the streets as the country faces its most painful downturn since independence from Britain in 1948.

“Social turmoilThe greatest risk is cash transfers. Cash transfers are the biggest risk. As you can see on the streets — the people are angry,” said Devarajan, who is now part of a new government advisory panel formed to tackle the country’s debt crisis.

Devarajan indicated that the government will implement a cash transfer programme to aid the poor along with reductions in fuel subsidies. This would help prevent a collapse for Sri Lanka’s debt-ridden economic system.

The protestors and the opposition have both called for Mahinda Rajapaksa’s resignation over economic mismanagement.

A foreign currency shortage has left Sri Lanka struggling to import essential goods, even as the coronavirus pandemic has cut off vital tourism revenue. The March foreign currency reserves decreased by 16%, to $1.93 Billion in March. Reuters reported citing central bank data.

Cautioning against a “disorderly default” on debts by cash-strapped Sri Lanka, he said any austerity measures would also have to be accompanied by efforts to educate the public.

This is very dangerous. “And if you wish to implement austerity during that situation, then you must manage it carefully,” stated the Georgetown University professor of the practice and development.

“You have to do two things: One, make sure that the poor are protected — the bottom 40% of the population — [through a]Targeted cash transfer 2. Conduct a campaign of public information to make people aware that these steps are necessary in order to prevent a bigger crisis.

A potential default of billions in foreign debt has been warned by rating agencies, and authorities are finding it difficult to obtain commercial loans as a result of credit downgrades.

According to Reuters central bank data, Sri Lanka has approximately $2 billion in foreign exchange reserves against $7 billion in total debt due this year, including $1 billion worth of notes maturing in July.

Devarajan stated that Sri Lanka must not suffer from disorderly default. Asia Squawk Box.

Other members of the advisory panel formed Wednesday include former governor of the Central Bank of Sri Lanka, Indrajit Coomaraswamy, and a former IMF official, Sharmini Coorey.

Devarajan stated that Sri Lanka should also raise taxes and cut spendings, restructure state owned enterprises, and decrease subsidies for food, fuel, and electricity.

He said that direct assistance to the poor must be provided in cash transfer form.

This is important as most subsidies like electricity and fuel subsidies are mostly enjoyed by the wealthy, but an increase in fuel prices will be detrimental to the poor. He said that the government should somehow accompany this with a cash transfer programme.

The chairman of Sri Lanka Port Authority said that port operations had been running smoothly despite the worsening economic crisis.

Prasantha Jayamanna denied reports disruptions at Colombo portThey said that the operations were routine.

He said, “We haven’t stopped a day in work.” CNBC interviewed him on Friday to say that everything is moving along smoothly.

According to him, there will be an increase in production figures for 2021. Last year we achieved the highest throughput. He said that the momentum was continuing and added that port congestion is not an issue.