Sri Lanka’s finance minister, Ali Sabry, waved a symbolic red flag in parliament on Wednesday as the country’s usable foreign exchange reserves fell below $50 million, raising concerns about the country’s ability to provide food, fuel, and other essential goods to its citizens while also repaying massive foreign debts.
Sabry, who resigned on April 4 a day after being hired, warned that ‘we have been overspending two and a half times.’ “Total income was 1,500 billion (Sri Lankan) rupees in 2021… spending was 3,522 billion rupees… we were living (above) our means…” he added, cautioning legislators that World Bank or IMF help would not fix long-term difficulties.
He stated, “The IMF is not Aladdin’s miraculous lamp.”
Sri Lanka is on the verge of defaulting on its foreign debts, which amount more than $50 billion, with an estimated $8.6 billion due this year.
In February, foreign exchange reserves were anticipated to be $2.31 billion. It had reduced to $1.93 billion by March.
According to media reports, overall reserves have plummeted by 70% in the last two years.
The World Bank said last week that it will grant $600 million in aid to Sri Lanka to help it meet payment obligations for key imports.
The World Bank announced that $400 million will be released ‘shortly.’ This is far less than the expected $3-$4 billion in bridging finance needed to cover crucial costs.
Sri Lanka’s government has issued a nationwide SOS, to which India has graciously answered. China, a big creditor, is also considering providing assistance.
Sabry praised India for its assistance during IMF discussions.
Sabry, who spearheaded those negotiations, told the Sri Lankan parliament today that he met Nirmala Sitharaman, who had given her government’s assistance.
Last month, Sitharaman stated that India will “attempt to give all feasible support” to Sri Lanka in order to assist it in resolving the conflict. The Indian government also talked to the IMF on Sri Lanka’s behalf, and the IMF’s leader, Kristalina Georgieva, later expressed gratitude for India’s help.
Since January, India has contributed over $3 billion in loans, credit lines, and swaps. It also provided another $200 million in gasoline on Monday, on top of two previous $500 million tranches. Sri Lanka also requested fertilisers and a postponement of a $2.5 billion payment to the Asian Clearing Union today.
The crisis has resulted in a lack of vital products such as food, gasoline, and medications, as well as increasing costs for what is still available.
It also sparked violent clashes between police and enraged Sri Lankans who demanded that President Gotabaya Rajapaksa’s regime be held accountable.
Sabry’s remarks came a day after the major opposition party filed a vote of no confidence in Rajapaksa, accusing him of mismanaging the country’s economy.