Amid severe forex crisis, Sri Lanka shuts down three missions abroad; shortages of essentials feared

Sri Lanka will temporarily close down three of its missions in Nigeria, Germany and Cyprus in what seems a desperate bid by the government to save its fast-declining foreign currency reserves amid a severe economic crisis

Dec 28, 2021
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Sri Lanka economy

Sri Lanka will temporarily close down three of its missions in Nigeria, Germany and Cyprus in what seems a desperate bid by the government to save its fast-declining foreign currency reserves amid a severe economic crisis. In November, its foreign exchange reserves came down to $1.56 billion—barely enough for a month of imports, of essentials, including fuel and food. 

Sri Lanka has been facing a severe foreign exchange crisis, prompting the government to put strict import control measures. However, the government’s inability to bring funds, loans, or lines of credit has further made the crisis worse. 

In the latest move to save dollars, the Sri Lanka High Commission in Abuja, Nigeria, the Consulate General of Sri Lanka in Frankfurt, Germany, and the Consulate General of Sri Lanka in Nicosia, Cyprus will be shut with effect from December 31, the Sri Lankan foreign ministry announced on Monday. 

"The restructuring is undertaken with a view to conserving the country's much needed foreign reserves and minimizing expenditure related to maintenance of Sri Lanka’s missions overseas," the foreign ministry said in a statement.

Significantly, the situation is becoming alarming in the island nation, with multiple warning signs from various sectors, including essential service sectors. Inflation is already skyrocketing and there is a genuine fear of shortages of essentials in the coming days. 

Last week, Uditha J Jayasinghe, then the agricultural secretary, had warned the government about an imminent food shortage, citing critical level stock and productivity—much of its because of the country’s disastrous organic policy. Many experts said the government had compromised the country’s food security.     
Similarly, fuel companies are also struggling in getting letters of credit for imports. Furthermore, the country’s Central Electricity Board announced that it would start scheduled power cuts as many of its power plants didn’t have enough fuel to operate at their full capacity. 

Sri Lanka's tourism-dependent economy was severely hit by the pandemic. The sector, which contributed $4.3 billion in its foreign reserves in 2018, is now down to just $82 million in the first ten months of the year—a whopping fall of almost  98 percent in comparison to the same period in 2018. 

The tourism sector also failed to recover in Sri Lanka due to the prolonged second wave of Covid-19 that raged the island nations for months. Furthermore, it also missed the window—just after the first wave in 2020—  to take the advantage of an early opening when several other destinations were openly their border partially. 

Currently, Sri Lanka has been negotiating a line of credit from India, and Finance Minister Basil Rajapaksa had even visited New Delhi earlier this month. So far no announcement has come from New Delhi. On other options like approaching multilateral lenders, including the International Monetary Fund (IMF), the government is yet to form a consensus.

The Fitch Ratings recently downgraded the country's sovereign rating to "CCC" from its earlier "CC" and said the country could also default on its external debt obligations. 
  
(SAM)

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