COLOMBO: Sri Lanka is likely heading down the path of a foreign debt crisis, which the country’s foreign reserves cannot absorb, a former Central Bank Deputy Governor said.
“If we look beyond the statistics that were published, we find a gloomy situation in Sri Lanka today because we are heading towards a foreign exchange crisis,” Dr. W.A. Wijewardena said.
He said that the foreign reserves are inadequate to fund the gap.
“The data just released by the Central Bank indicate that within the 12-month period, we have to have about US $ 4.7 billion to repay as foreign debt and interest on that,” he added.
Dr. Wijewardena noted that the import-driven economy deteriorates the foreign reserves by US $ 4 billion every three months.
“So when we add up, the total is much more than the total foreign reserves that we have,” he said.
Sri Lanka currently has “a little over US $ 7 billion” in foreign reserves, according to Central Bank Governor Arjuna Mahendran.
He said that it had increased partly through contributions from a US $ 1.5 billion bond, which was mainly taken to repay debts, as well as through savings inflows from Sri Lankans living both here and abroad.
The recent Budget does not help, as it called for the foreign reserves to be pushed up to US $ 10 billion by June 2016, through hopes of investment inflows and export contributions.
However, Dr. Wijewardena recently told Mirror Business that exports are likely to face one of the toughest years in 2016 due to global macroeconomic factors and lack of local innovation.
International investor George Soros said that Sri Lanka should not hope for foreign investments, as banks are now following a trend of pulling out investments from Asia due to the problems in China, which was the engine of the global economic growth in recent years.
