Finance Minister Basil Rajapaksa said that Sri Lanka was facing a severe external crisis as well as a domestic crisis with revenues falling and expenses continuing to rise. File | Photo Credit: PTI
Sri Lanka is facing a severe foreign exchange crisis as the island nation, which depends heavily on tourism and tea exports, was battered by the coronavirus pandemic, Finance Minister Basil Rajapaksa has said.
He added that state coffers also suffered huge revenue losses due to the COVID-19 outbreak.
The Finance Minister told Parliament on Tuesday that Sri Lanka was facing a severe external crisis as well as a domestic crisis with revenues falling and expenses continuing to rise.
“Our country is facing a severe foreign exchange crisis”, he said, adding that data from the central bank shows the country’s net foreign exchange reserves are close to zero, which means almost all of its reserves are borrowed.
“Due to COVID-19, the government’s revenue for this year has fallen between 1500 and 1600 billion rupees from the estimated amount”, the younger brother of President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, told the House.
The drop in tourism income could possibly be between $4 to five billion.
The Country economy suffered a futile blow, as Covid travel restrictions hit tourism.
The island nation GDP contracted by a record 3.6% in 2020 and its foreign exchange reserves plunged by over a half in one year through July to just $2.8 billion. This has led to a 9% depreciation of the Sri Lankan rupee against the dollar over the past one year, making imports more expensive.
The government faces accusations that it was printing money to keep interest rates low.
Mr. Rajapaksa said the revenues from customs had fallen sharply.
Despite receiving $800 million particular drawing rights allocation from the International Monetary Fund (IMF), Mr. Rajapaksa didn’t say if the federal government would search for an IMF bailout.
He mentioned the federal government would strategy the World Bank and the Asian Development Bank (ADB) for help.
“The World Bank and Asian Development Bank have been particularly helpful, the government will continue to borrow from them.”