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Covid batters Sri Lanka–drop in tourism, expat remittances force Colombo to seek the IMF’s ‘advice’

All eyes on Sri Lanka

Even as a near bankrupt Sri Lanka averted a default by repaying $500 million international sovereign bond (ISB) in January, anxious global investors are monitoring the economic situation closely. “The government’s next big challenge is a $1bn bond repayment due in July. If it fails to pay, it would join countries including Suriname, Belize, Zambia, and Ecuador in defaulting on its debt following the pandemic,” Financial Times in a report said.

While the island nation would be required to pay about $7 billion this year comprising interest and debt repayments, its foreign reserves are currently around $3 billion. In the next five years, Sri Lanka’s repayment amount is estimated at $29 billion.

Colombo’s import requirements, even for several essential items including food and medicine, are significantly high adding to the problem. Colombo has assured investors that it will not default but there is rising pressure on the Gotabaya government to restructure loans in order to prioritise needs of its own citizens.

Also read: BIMSTEC rises to meet post-Covid challenge with new roadmap for growth

Sri Lanka, which had earlier shown its unwillingness to seek assistance from the International Monetary Fund (IMF) has now sought its advice on the current situation.

The country’s Finance Minister Basil Rajapaksa said that an IMF team will arrive "in the next few days” to advise on how to deal with the situation. "I can't say whether we will accept their advice or not, but they will tell us what we don't know," he said.

Colombo is also aggressively looking at government to government support. Recently, India provided assistance to the beleaguered nation, which includes a $500 million line of credit.

The tourism dependent Sri Lanka has opened its doors to tourists as well as foreign investors as the Gotabaya government is trying put its best foot forward to resurrect its sagging economy.

“We have never seen anything like this before…there is gloom and uncertainty,” a person living there said.

As the Covid 19 pandemic hit hard, Sri Lankan economy is facing a twin challenge of fast eroding foreign exchange reserves and surging inflation. Sri Lanka’s President Gotabaya Rajapaksa declared a state of economic emergency in September last year.

Colombo even urged its citizens residing outside the country to remit a larger quantum of money to boost the country’s foreign exchange reserves.

“I invite all expatriate Sri Lankans to invest in their homeland,” Gotabaya said in Independence Day address. Remittances, which have handsomely contributed to the country’s economy, have been gradually thinning.

Meanwhile, As the economic crisis deepens in Sri Lanka with rising inflation, shortage of food items and gas supply along with burgeoning debt levels, scores of citizens are looking to relocate to other countries.