Sri Lanka economy in crisis as debt mounts, reserves dwindle: Associated Press

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Sri Lanka was in trouble before the pandemic struck, laying low a tourism industry that is a vital source of foreign exchange earnings, said in an article of Associated Press. 

Sri Lanka has cut back on imports of farm chemicals, cars and even its staple spice turmeric as its foreign exchange reserves dwindle, hindering its ability to repay a mountain of debt as the South Asian island nation struggles to recover from the pandemic.

Toothbrush handles, venetian blinds, strawberries, vinegar, wet wipes and sugar are among the hundreds of foreign-made goods that were banned or made subject to special licensing requirements meant to chip away at a trade deficit that has been deepening the country’s financial quandary for years.

Shortages are pushing prices higher for many consumer goods, from bread to construction materials to gasoline, triggering protests among Sri Lankans fed up with the prolonged crisis.

Thusitha Vipulanayake ran out of motorcycles to sell in August 2020. Usually able to sell at least 30 a month, and a dozen motorized trishaws, he now gets by selling bottled, locally grown turmeric paste and LED lightbulbs.

“This is something we never expected,” Mr. Vipulanayake said as he sat at his empty motorcycle showroom along a road outside the capital Colombo.

Tourism

Sri Lanka was in trouble before the pandemic struck, laying low a tourism industry that is a vital source of foreign exchange earnings. It normally provides jobs for more than 3 million people and accounts for about 5% of GDP.

Visitors already were staying away after deadly suicide bombings on Easter Day 2019 killed more than 250 people. But efforts to revive the industry are falling flat as the country endures another wave of COVID-19 infections.

Foreign debts

Now, the country’s foreign exchange reserves have dwindled to barely enough to pay for three months of imports at a time when big repayments of its foreign debts are falling due, straining its financial system. The Petroleum Minister, Udaya Gammapilla, recently said the country lacked enough cash to pay for oil imports.

To conserve precious foreign exchange, the government has limited U.S. dollar transactions. Despite the limits imposed last year, imports still outpace the country’s exports of tea, rubber, seafood and garments.

Officials say they hope to attract more foreign investment and avoid seeking help from the International Monetary Fund, which tends to impose strict policy conditions on its borrowers.

Organic farming

The government’s decision in April to ban the use of agricultural chemicals, ordering farmers to switch to organic farming, was aimed at saving $400 million a year on imports.

But Sri Lankan farmers rely heavily on such chemicals. Some said they are using cow dung, poultry litter and compost to make up for the loss of fertilizer, but the sudden switch is hurting yields.

The pressure is on garment makers, as well, as the European Union reviews its favorable tariff treatment for Sri Lankan products under the GSP, or generalized system of preferences. It eliminates import duties on a large share of Sri Lanka’s products, such as textiles, tea and fish, an advantage worth some $360 million annually, according to the EU.

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