Sri Lanka

Sri Lanka is effectively devaluing its currency as its foreign reserves dwindle, potentially accelerating the worst inflation surge in Asia as the nation struggles to service its debt and pay for imports, Bloomberg News reported. The Central Bank of Sri Lanka said in a statement late Monday that “greater flexibility in the exchange rate will be allowed to the markets with immediate effect.” The central bank also said it’s “of the view” that transactions would be capped at 230 rupees per dollar, about 12% below the current market level of 201.49 rupees.

Sri Lanka devalued its currency as foreign exchange reserves fell to the lowest since November 2021, reflecting a continued challenge for the country’s ability to import essentials, keep the power on and service its debt, Bloomberg News reported. “Greater flexibility in the exchange rate will be allowed to the markets with immediate effect,” while the rupee will be capped at 230 per US dollar, the Central Bank of Sri Lanka said in a statement.

With Covid shutting off tourism from much of the West, Russia and Ukraine had become an increasingly important source of foreign currency for Sri Lanka. The conflict threatens to turn off that tap as key bond repayments come due, Bloomberg News reported. Almost a quarter of all tourist arrivals into Sri Lanka this year were from Russia and Ukraine -- rising to 30% if you include Poland and Belarus, official data show. Russia, which was the third-biggest buyer of Sri Lankan tea over the past two years, rose to second place in January.

Restructuring bankers have visited Sri Lanka to discuss proposals with the government on raising funds to help manage a debt crisis that has left the South Asian country struggling to pay for imports and stoked political controversy, WSJ Pro Bankruptcy reported. Advisers from investment banks including Rothschild & Co. and Lazard Ltd. have recently met with government officials and discussed potential plans to help the nation raise cash, including asset sales and securitized debt facilities. Rothschild declined to comment.

Many Sri Lankan voters who backed President Gotabaya Rajapaksa’s election bid three years ago are now struggling to make ends meet. His government is spending to ensure that support continues even as reserves and finances dwindle, Bloomberg News reported. That could lead to Colombo asking for more loans and aid from China and India given that the government has vowed to stay away from International Monetary Fund assistance that often comes with conditions for fiscal and monetary reform.

Global investors are growing more skeptical that Sri Lanka will be able to repay its long-term debt as the island nation turns to bilateral aid to help it meet obligations, Bloomberg News reported. The South Asian country’s dollar bonds maturing toward the end of this decade are trading near record lows and default risk is holding near an all-time high, data compiled by Bloomberg show. The first test would be a $1 billion maturity in July, which policy makers say they will repay in time after drawing down a swap facility from China to help meet a $500 million payment this week.

Sri Lanka’s federal Cabinet will meet Monday to decide whether or not to seek bailout funds from the International Monetary Fund as the nation struggles with limited options to address upcoming debt maturities, Bloomberg News reported. The group of ministers will be joined by central bank Governor Ajith Nivard Cabraal as well as Treasury Secretary Sajith Attygalle, according to Environment Minister Mahinda Amaraweera, whose Sri Lanka Freedom Party members have favored approaching the Washington-based lender.

India is working out a package on an urgent basis to assist Sri Lanka, following finance minister Basil Rajapaksa's New Delhi visit that focussed on measures to tide over an economic crisis that the island nation is facing, the Economic Times of India reported. India is expected to extend a food & health security package to Sri Lanka on an urgent basis, along with an energy security package and currency swap, and also push Indian investments, officials told ET.

The Sri Lankan government campaign toward organic farming lasted only seven months, but farmers and agriculture experts blame the policy for a sharp drop in crop yields and spiraling prices that are worsening the country’s growing economic woes and leading to fears of food shortages, the New York Times reported. Prices for some foodstuffs, like rice, have risen by nearly one-third compared with a year ago, according to Sri Lanka’s central bank. The prices of vegetables like tomatoes and carrots have risen to five times their year-ago levels.

Sri Lanka has declared an economic emergency empowering the authorities to seize stocks of staple foods and set their prices, to contain soaring inflation after a steep devaluation of its currency due to a foreign exchange crisis, Reuters reported. The president of the island nation, Gotabaya Rajapaksa, on Monday declared an emergency under the public security ordinance to maintain the supply of food items such as sugar and rice at fair prices. The emergency came into effect from midnight.