SRI LANKA Colombo towards improving economic indicators

Foreign exchange reserves increased by 23.5%. For economists, it is the beginning of the end of the economic crisis. The chances of receiving a loan from the International Monetary Fund increase.

Colombo () – Sri Lanka’s foreign exchange reserves increased to 2.1 billion dollars in February this year, after falling to 1.7 billion in September 2022. According to officials from the Ministry of Finance, the reserves increased by 400 million dollars (or 23.5%) in the first week of last month.

Economic analysts Darshani Senanayaka and Sumith Lahandupura explained to that “these statistics show that the island nation is emerging from a deep abyss into a prosperous future.” The Sri Lankan rupee is also appreciating against the US dollar right now.”

Sri Lanka is facing unsustainable debt and a severe balance of payments crisis, which are having a negative impact on growth and poverty rates. According to the latest forecasts from the South Asia Economic Focus, Sri Lanka’s GDP should decline by 4.2% in 2023.

At the beginning of 2022, the temporary suspension of a part of the external debt was announced due to the serious shortage of foreign currency and measures were taken to consolidate the public debt, anticipating a financing agreement with the International Monetary Fund (IMF).

Towards the end of last year, Sri Lanka’s monetary policy tightened with an unprecedented adjustment in interest rates to prevent further inflationary pressures. These measures guaranteed the availability of foreign currency to import basic goods, such as fuel, coal, cooking gas, medicines, and food, alleviating, at least partially, socioeconomic needs.

Central Bank of Sri Lanka (CBSL) officials believe that “the country’s economy will recover in the second half of 2023. Due to decades-long structural economic impediments, aggravated by economic shocks and unfortunate political decisions, Sri Lanka is facing its worst economic crisis since independence, at least until early 2022.”

After an actual contraction of around 8% last year, the national economy is expected to “recover gradually in the second half of 2023 and continue its growth momentum going forward,” the CBSL continued.

According to experts Sampath Amaraweera and Sachintha Madugalla, “CBSL needs liquidity to repay the IMF and other lenders once a deal is approved in late March or early April. Unlike other ‘bailouts,’ IMF are governed by strict policies, such as stopping the printing of money and reducing domestic credit by raising taxes, while maintaining balance in the foreign sector.Both floating and constant exchange rates work on the same principle: inflows and departures coincide and the sales of reserves do not generate more outflows, which encourages the nation to live beyond its means”.