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Bankrupt Sri Lanka’s dollar reserves drops to below $50 mn - 2 min read

foreign reserves

Colombo: Predicting a doomsday scenario for crisis-ridden Sri Lanka, the island nation’s Finance Minister Ali Sabry on Wednesday May 4 announced that total foreign reserves have dropped even below $50 million and warned that the current economic crisis could not be solved even within next two years.

Explaining the depth of the crisis the Indian Ocean island nation has fallen to, he doubted the country’s ability to provide food, fuel and other essentials and repay massive foreign debts.

“Within next two to three months, we might have to face a severe situation. We are at a doorstep of a disaster. There would not be a country to do politics for us,” he Minister said.

However, citing India as an example, Sabry said that the crisis could be made into a blessing by acting like India did in 1990s overcame the economic crash. He said the island’s closest neighbour’s foreign reserves had dropped to $2 billion and gold was reserved in London Banks, but it and managed it properly and emerged as one of the most powerful countries.

“This crisis could be made into a blessing just like how India did in 1991 and 1992 or we would get into a wrong track and end like Venezuela or Lebanon and lead to a much worst situation from here,” he cautioned.

The Minister also reminded the assistance extended by India at time of worst ever crisis in its post-independent history. He said India has given $500 million to purchase fuel out of which $400 million has already spent and out of $1 billion, $200 million has been allocated for fuel supply.

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Meanwhile, the Indian High Commission in Colombo, in a tweet, announced on Wednesday that 40,000 MT of petrol were delivered to Sri Lanka making the total petrol supply to around 440,000 MT and “More to follow!!!”

Since January India has assisted Sri Lanka with nearly $3 billion including financial assistance, essential goods and currency swaps.

The Finance Minister blamed his own government for making “several mistakes” since it came to power in December 2019. Reducing taxes at a time when it was much needed to increase them, not going to the International Monetary Fund (IMF) earlier than this and artificially manipulating the dollar were historical mistakes that the government made, he regretted.

He noted that the foreign reserves, which were at $7 billion in 2019, had now being dropped to less than $50 million while total foreign loans hit $51 billion. Sabry said that an expert team, devoid of politics, would be appointed by next week to discuss with the IMF to restructure loans and insisted that a new budget has to be presented with increasing taxes.

Grappling with the worst economic crisis in the recent history and facing acute shortage of food, medicine and other essentials and days long queues to purchase fuel and cooking gas, Sri Lanka, on April 12, announced it was defaulting on its all foreign debts.

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