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Sri Lankan Cabinet remains divided over seeking IMF bailout to overcome dollar crisis

Lanka's Gross Domestic Product contracted by a record 3.6 per cent in 2020 and its foreign exchange reserves plunged by over a half in one year through July to just USD 2.8 billion.

Published: 21st December 2021 06:33 PM  |   Last Updated: 21st December 2021 06:33 PM   |  A+A-

Sri Lanka Flag

Sri Lanka Flag (Photo | AFP)

By PTI

COLOMBO: The Sri Lankan Cabinet on Tuesday remained divided on the issue of seeking an IMF loan to tide over the acute foreign exchange shortage, which has pushed the island nation into a severe economic crisis.

Lanka's Gross Domestic Product contracted by a record 3.6 per cent in 2020 and its foreign exchange reserves plunged by over a half in one year through July to just USD 2.8 billion.

This has led to a 9 per cent depreciation of the Sri Lankan rupee against the US dollar over the past one year, making imports more expensive.

The country is facing a severe foreign exchange crisis after the pandemic hit the nation's earnings from tourism and remittances.

Addressing a media briefing, Co-Cabinet spokesman Dullas Alahapperuma said the Cabinet collectively is undecided on seeking an International Monetary Fund (IMF) loan to overcome the current economic crisis though there are some cabinet ministers who have suggested seeking help from the global lender.

The country on Monday night raised fuel prices, a move which Alahapperuma said was an important step in combating the dollar crisis.

Lanka's oil bill has jumped 41.5 per cent to USD 2 billion in the first seven months of this year, compared to last year.

The decision to increase the fuel prices came as the government in November shut down the country's only refinery, Sapugaskanda, due to lack of foreign exchange to pay for crude oil imports.

According to the government, talks are underway with India and Oman to work out direct credit lines for crude purchases.

International ratings agency Fitch on Friday last downgraded Sri Lanka's credit rating to CC' barely above default, after foreign reserves depleted to USD 1.6 billion at the end of November.

It expressed serious reservations about the government's ability to meet its international debt payments due early next year.

Although the government slammed the Singapore-based ratings agency, it is yet to announce its inflow of dollars required to meet the obligations.

"It all happened under unforeseen circumstances with the Covid situation and locking the whole world," Co-Cabinet spokesman and plantation minister Ramesh Pathirana told reporters when asked about the long term economic policy.

Pathirana said due to the pandemic, "we have lost USD 14 billion in the last two years -- USD 10 billion from tourism and USD 4 billion from foreign remittances."

In November, Lanka's inward foreign remittances fell to USD 271.4 million, a 12-year low.

That was a drop of over 50 per cent year-on-year with the 2020 November figure of USD 611.7 million.



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