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Sri Lanka facing forex reserve crisis, but all debt will be repaid: Finance Minister |

ECONOMYNEXT – Sri Lanka is facing foreign reserve crisis but all debt due in 2022 will be repaid, Finance Minister Basil Rajapaksa said as forex reserves held by the island’s Latin America style central bank fell to one month of imports.

“I explained in the budget the crises facing the country,” Minister Rajapaksa told parliament at the conclusion of a debate on the 2022 budget.

“On that basis, I will not try to challenge the several opposition legislators who explained this (pahadili kara).

“Actually we are in a major foreign exchange crisis. In the same way I admit that from the foreign reserve point of view also we are in a serious situation.”

Sri Lanka’s gross official forex reserves fell to 1,587 million dollars at the end of November 2021 or about one month worth of imports.

However unless money is printed by the central bank, reserves are not expected to be used for imports.

Sri Lanka’s has been printing money at an exceptional rate from around February 2020 for ‘monetary stimulus’ after cutting taxes in December 2019 for ‘fiscal stimulus’.

However the central banks currency inflationary policy cycle began in August 2019, when outright purchases of securities from the market began, despite operating a soft-peg.

The central bank’s net reserves are now negative.

Minister Rajapaksa said the government would repay all debt falling due in 2021.

“At the same time, on the approval of the President and the Prime Minister I guarantee that we will repay all dollars due in 2022,” he said. “I am giving this guarantee with responsibility.”

He said a 500 billion sovereign bond in January and a billion dollars in June as well as some other debt service and interest payments in between.

“We have a plan to pay them,” he said.

He said in 2019, 31,674 million dollars had come from goods and services exports, remittances, foreign investments and debt.

But in 2021 tourism revenues had fallen and remittances had also fallen.

However the country will do import substitution and renewable energy to ‘save’ foreign exchange and build reserves to repay loans.

“Then we will not have to go and beg (wandala) and ask for extension for one year or debt restructuring,” he said.

“We are trying to pay without doing that. Some one said Sajith’s government will come next year. It will not happen. But when we give we will fix the country and give.

Responding to calls from the opposition to go for an International Monetary Fund program, Minister Rajapaksa said a team was currently in the country for annual consultations.

“They told me the opposition had not given them a time to meet,” Minister Rajapasksa said. “The opposition leader said he was willing to help. But even to the IMF, your deviyan-narn-say (God), Shakraya (Hindu god of creation) your leader has not given a time.”

“We have no confidence. We are their members. They do an annual review and give recommendations. Some of the thing we do.

Sri Lanka became a member of the IMF a day after a Latin America style central bank set up by a US money doctor came into being.

Latin American central banks were set up on the false belief that it was possible to sterilize the balance of payments.

The IMF was set up mainly by US Keynesians who imagined it was possible to maintain pegs and print money at the same time and set up the Bretton Woods system of failed soft-pegs.

He said he had also gone to the IMF once, and had listened to long speeches by the directors.

The third reading of the 2022 budget was passed with a majority of 93 votes. Of the 225 members 157 voted for and 64 voted against. (Colombo/Dec10/2021)

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