Sri Lanka’s current financial situation was bristling even before the Covid -19 has thrown its third blow on the country and it has to seek more aid from its strategic ally China economic experts suggested.
The Central Bank will have to make a formal appeal for 800 million US dollars worth reserves from the International Monetary Fund as a part of a new allocation of Special Drawing Rights, as a last resort whether they like it or not.
All the crisis signs are now closing in the island nation with tumbling currency, credit rating downgrades, bonds at half their face value, debt-to-GDP levels above 90% and almost 70% of government revenues being spent on interest payments alone.
Sri Lanka could get up to 800 million US dollars worth reserves from the International Monetary Fund as a part of a new allocation of Special Drawing Rights,which will save the country from a possible collapse restoring international community confidence , they pointed out..
Central Bank Governor Prof W.D Lakshman with a grin in dim face recently sought to dispel fears of a default in a statement recently, calling speculation “baseless” and vowing the country will “honor all its debt service obligations in the period ahead”.
External debt payments between now and December is amounting to $3.2 billion.
Other costs could add up to $6.5 billion in the next 12 months, according to provisional estimates, and with FX reserves of just $7.2 billion, it has described the situation as a ‘tightrope walk’.
The government has allocated up to 0.1 percent of GDP for containment measures, as well as US$5 million (0.01 percent of GDP) to the SAARC COVID-19 Emergency Fund.
Cash transfers to vulnerable groups amounted to around 0.6 percent of GDP or $3 million in 2020 and around 0.1 percent of GDP or $ 5 million so far in 2021, official data showed.
The Sri Lankan authorities have introduced measures aimed at restricting capital outflows, through suspension of outward investment payments .
There are also import restrictions on certain goods, and commercial banks are prohibited from facilitating imports of vehicles. Outward remittances have been limited, while inward remittances are exempted from certain regulations and taxes.
Moreover, firms have been permitted to borrow from abroad and foreign investors have been allowed to purchase unlisted Sri Lankan debt securities.
Commercial banks have been permitted to purchase Sri Lanka International Sovereign Bonds (SL isbs) subject to the funds being raised overseas and split evenly between new purchases of SL isbs and Sri Lanka Development Bonds.