Sri Lanka will be bankrupt by January: Harsha -BY Shenal Fernando

Source:

Themorning

• Says $ 1.4 b outflows expected in Dec., Jan.
• Negative $ 437 million currency reserves by end Jan.
• $ 4.8 billion due in Feb.-Oct. 2022
• Negative $ 4.7 billion currency reserves by Oct.

Sri Lanka will be bankrupt by January 2022 as the country’s foreign currency reserves are insufficient to fund the foreign currency-denominated debt service repayments over the next two months, Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva claimed. 

“During the months of December and January we have to repay $ 114 million in short-term funds. In addition, we have to repay $ 1,137 million in other loans as well as $ 194.7 million in interest payments. Therefore by end January we will have only $ 140 million left from the existing total foreign reserves and when considering in terms of liquid foreign currency, our balance will be negative $ 437 million. How can we go forward like this? Our reserves at hand have never fallen like this,” he stated in Parliament on Wednesday (8). 

He further claimed that Sri Lanka has to repay a further $ 4,843 million during the period from February to October 2022 but we will have only $ 140 million on hand, thus the balance at the end of the period will be a negative $ 4,700 million. “That means the country is bankrupt. I hope the Finance Minister has a plan because the Government must act responsibly,” stated Dr. de Silva. 

However, speaking in Parliament yesterday (9), State Minister of Samurdhi, Household Economy, Micro Finance, Self-Employment, and Business Development Shehan Semasinghe claimed that the Government had taken several steps to strengthen the reserve position of the country. 

He stated: “The Central Bank of Sri Lanka (CBSL) has commenced discussions with the Central Bank of Qatar to obtain a swap of over $ 1 billion. Furthermore, under the SAARC financial facilities we have obtained a foreign currency swap of $ 400 million from the Indian Reserve Bank. In addition we have also taken steps to obtain $ 300 million through combined loan schemes. Further, the Government is hoping to receive $ 500 million through the securitisation of foreign worker remittances. Additionally, the Finance Minister has obtained from his Indian visit a $ 500 million credit line for fuel purchasing and a $ 1 billion credit line for essential goods and medicine purchases. Financial institutions such as the Asian Development Bank and the World Bank have also indicated that they will support us.” 

Currently, as per CBSL data, total government debt stands at Rs. 16.6 trillion, of which Rs. 6.6 trillion is foreign denominated debt; this represents 40% of the total debt. Furthermore, Sri Lanka’s official foreign reserves had fallen to $ 1.6 billion by end November, down 40% from October. From the remaining reserves, liquid foreign currency reserves amount to only $ 1.0 billion which is sufficient to cover only around three weeks of imports, according to CBSL data. 

In light of this situation, obtaining the $ 400 million currency swap from the Indian Reserve Bank under the SAARC currency swap framework to help address the existing Balance of Payment (BOP) issues, the $ 1 billion line of credit to cover the import of food, medicines, and other essential items from India to Sri Lanka, and the $ 500 million line of credit to cover fuel imports from India is essential to avoid bankruptcy by January as claimed by Dr. de Silva.