Sri Lanka’s central bank has made sure foreign exchange to pay for fuel and gas shipments will be easy crippling deficiencyits governor said, as police fired tear gas and water cannon to repel student protesters.
Most of Sri Lanka’s gas stations have run dry as the island nation faces its most devastating economic crisis since independence in 1948.
At several pumps in the commercial capital Colombo, on Thursday, dozens of people lined up holding plastic soda cans, as troops in combat gear and armed with rifles patrolled the streets.
Traffic is very light. Residents said most people had to stay at home because of a lack of transportation.
Meanwhile, hundreds of students from the Union of College Students carrying black flags marched on Colombo’s Central Fort area, chanting anti-government slogans. Police fired multiple rounds of tear gas and water cannons to repel them.
Foreign currency holding limit
Central bank Governor P Nandalal Weerasinghe said in a press conference that enough dollars have been released to pay for fuel and gas shipments, using a portion of the $130 million received from the Bank World and remittances from Sri Lankans working abroad.
He spoke after the central bank kept interest rates steady at a policy meeting, citing a massive 7 percentage point increase in April that it said was working through the system.
The central bank also said it would reduce the maximum amount of foreign currency individuals can own to $10,000 from $15,000 and fine anyone who holds it for more than three months.
Weerasinghe says people must deposit their excess foreign currency in a bank or convert it into local currency within two weeks. After that time, central bank officials and the police will conduct raids and anyone violating the new regulations will be fined, he said.
Weerasinghe says the country is more stable politically and economically, adding that he will continue to hold his post. He told reporters on May 11 that he would step down after two weeks amid political uncertainty as any steps the bank took to tackle the economic crisis would be unsuccessful amid the uncertainty. chaotic scene.
Opposition MP Ranil Wickremesinghe was appointed prime minister last week and he has been appointed to the cabinet four times. However, he has yet to name a finance minister.
Inflation could rise further to a staggering 40% over the next few months but it is driven largely by supply-side pressure and bank and government measures that have curbed demand-side inflation. central bank governor added.
Inflation hit 29.8% in April with food prices up 46.6% year-on-year.
Sri Lanka’s economic crisis stems from a combination of the COVID-19 pandemic hitting a tourism-dependent economy, rising oil prices and the President’s government’s populist tax cuts. Gotabaya Rajapaksa and his brother, Mahinda, who resigned as prime minister last week.
Other factors include heavily subsidized domestic fuel prices and the decision to ban the import of chemical fertilizers, devastated the agricultural industry.
“This is an economy that hasn’t really fully recovered from the pandemic,” said Christian De Guzman, senior vice president of sovereign risk at Moody’s. “Tourism, one of their growth engines, hasn’t come back.”
‘We cannot return’
Sri Lanka is also official now in default mode on its sovereign debt as a so-called grace period to make some overdue bond interest payments due on Wednesday.
Weerasinghe said the debt restructuring plan is almost complete and he will submit the proposal to the cabinet soon.
“We are in pre-default,” he said. “Our position is very clear, until there is a debt restructuring, we cannot pay it.”
The central bank says energy and utility prices need to be revised urgently, and analysts say the prime minister’s ability to push reforms through parliament and overcome public anger they will be very important.
They need to bring to parliament important reforms and other measures to test their support and see if they really agree, said Shehan Cooray, research lead at Acuity Stockbrokers in Colombo. and stable or not.
However, he added that the situation had turned for the better. “Given that there was a point where finding a governor was even more difficult, it was a good thing that he decided to stay,” said Cooray.
A spokesman for the International Monetary Fund on Thursday said the fund is closely monitoring developments and that a virtual delegation to Sri Lanka is expected to conclude technical negotiations on a program for potential loans to the country on May 24.
Sri Lanka has suspended paying about $7 billion in foreign loans due this year out of $25 billion to be paid in 2026. The country’s total external debt is $51 billion. The Treasury Department says the country currently has only $25 million in usable foreign exchange reserves.
Authorities have announced nationwide power cuts for up to four hours a day because they cannot supply enough fuel to power generating stations.
The government asked state employees not to go to work on Friday, except for those necessary to maintain essential services, because of fuel shortages.
Wickremesinghe, speaking to parliament on Thursday, said the government was working to free up six fuel shipments that had docked in Colombo.
“There are two gasoline shipments among them but this will not end the shortage,” he said, adding that supply would only be locked up until mid-June.
“Our goal now is to reduce lines and find a way to start stockpiling fuel so that even if a few shipments are missed there is still fuel available.”
However, there is considerable opposition to him. Protesters agitated for the Rajapaksa brothers’ ouster say he is their fraud and continue to occupy entrance to the presidential office for more than a month, calling for Gotabaya Rajapaksa to resign.
Months of anti-government protests have led to the near disintegration of the once powerful ruling family, with one of the president’s brothers resigning as prime minister, the brothers and sisters. another and one of their nephews left their cabinet posts.
The protesters accused Rajapaksas of causing the crisis through corruption and misconduct.