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Sri Lanka’s forex reserves drop to a new low, just enough to handle imports for a month

Sri Lankan economic mess

Sri Lanka’s foreign exchange reserves further dropped to $1,587 million in November 2021 – the lowest since May 2009. In October, Sri Lanka’s forex reserves stood at $2,269.2 million recorded in October. The country’s forex reserves are just enough to cater to a month’s imports.

According to a study by the Observer Research Foundation (ORF), Covid-19 pandemic has led to a global slump with productivity dropping and supply chains getting disrupted across the world. “As global food prices have risen, countries like Sri Lanka have borne the brunt given their reliance on imports to sustain themselves,” it said.

The crisis has prompted Colombo to offer incentives to Sri Lankans living overseas to expand their remittances. The country’s central bank said on December 1 that it “has decided to pay an incentive of Rs. 8.00 per US dollar for workers’ remittances, in addition to the existing incentive of Rs.2.00” under the “Incentive Scheme on Inward Workers’ Remittances.”

Also read: Forex crisis may lead to closure of Sri Lanka's only oil refinery unless India steps in

The central bank also said that the additional incentive provided by the CBSL is expected to attract more workers’ remittances to the country through the formal banking channels, thereby improving the foreign currency liquidity in the domestic foreign exchange market.

The ORF also pointed out that the problem for Colombo is related to China. “The attempt by the Rajapaksa government to get too close to Beijing has resulted in decisions where the only beneficiary has been China. Sri Lankan interests have been hurt and the challenge has only escalated,” it added.