Sri Lankan economy down to last £40m foreign reserves, says minister

SRI LANKA’S economy is in dire straits with its usable foreign reserves down to less than £40m, the country’s finance minister said.

Ali Sabry was speaking to Parliament yesterday after returning to Sri Lanka from talks with the International Monetary Fund (IMF).

He said any IMF rescue programme, including a rapid financing instrument needed to urgently resolve shortages of essential goods, would depend on negotiations on debt restructuring with creditors and would take six months to implement.

Sri Lanka is on the brink of bankruptcy and has suspended payments on its foreign loans. Its economic miseries have brought on a political crisis, with the government facing protests and a no-confidence motion in Parliament.

The country is due to repay £5.6bn this year of the £20bn in foreign loans it is scheduled to pay by 2026.

“There is a severe risk in front of all of us,” said Mr Sabri.

He said Sri Lanka’s reserves stood at £6.1bn at the end of 2019 and fell to £4.6bn by the end of 2020 as payments outpaced inflows of foreign currency amid the pandemic.

The reserves declined to £2.5bn by the end of 2021, and to £1.5bn by the end of March, he said.

With foreign currency in short supply thanks to less tourism and other revenues, official reserves were tapped to pay for importing essentials including fuel, gas, coal and medicines beginning in August 2021.

The bulk of Sri Lanka’s remaining reserves – including a £800 million equivalent Swap facility from China, are not usable for settling dollar-denominated payments, he said. Mr Sabri’s comments came a day after the country’s main opposition party issued a no-confidence motion aiming at ousting Prime Minister Mahinda Rajapaksa and his Cabinet.