What are the options for Sri Lanka to overcome the economic crisis?

Sri Lanka is facing the worst economic decline in its history. To deal with this situation, now the government there is hoping for help from India and China.

Sri Lanka has preferred to seek aid from its neighbors rather than from global financial institutions. The Sri Lankan government has been unable to control inflation in the past few months and has faced criticism from across the country. Sri Lanka printed a lot of currency in an attempt to maintain a low-interest rate amid a growing budget deficit. All this was happening when there were reports of rapid depreciation of foreign exchange in the country.

The import of some items was also stopped due to shrinking foreign exchange reserves. According to a Sri Lankan newspaper, the country's main opposition coalition, Samaji Jana Balavegaya, said on November 29 last year that Sri Lanka's foreign exchange reserves "have reached their historic low of US$1.2 billion at the moment."

Meanwhile, it has been learned that Sri Lanka's central bank 'The Central Bank of Sri Lanka' has sold more than half of the gold reserves kept with it. 'The Sunday Times' in a report on January 8 has written that 54.1% percent of the gold reserve has been used to strengthen the foreign exchange reserves.

Sri Lankan leaders are blaming Covid for these situations, but critics are blaming the government for this. The government of President Gotabaya Rajapaksa is ready to do anything amidst dwindling foreign exchange reserves, wildly rising prices, and the prospect of a shortage of food items.

Hope for help from China and India

Sri Lanka made a lot of efforts to get financial aid from the International Monetary Fund. But the IMF ignored his demand because the current government of the country did not intend to implement the agenda of economic reform according to the agency.

However, Sri Lanka has not ruled out the possibility of receiving foreign aid in any other form. Like in the past, this time too Sri Lanka has appealed for help from each other's rival countries India and China in the region.

Sri Lanka's Finance Minister Basil Rajapaksa had extended the line of credit for the purchase of food grains, medicines, and other essentials during his 'very important' visit to India in December last year, Tamil newspaper Veerkesari reported.

Recently, Chinese Foreign Minister Wang Yi was on a visit to Colombo on January 8 and 9. A statement issued by the Sri Lankan presidential office said, "In his meeting with Foreign Minister Wang Yi, President Rajapaksa called for debt restructuring (change in the terms of old loans) and credit on goods imported from China. of."

The Daily Mirror wrote in its report on January 5 that the President of Sri Lanka is considering forming a cabinet-level committee to negotiate with friendly countries before the payment of the foreign debt in the year 2022. The purpose of this conversation is to try to get financial help from these friendly countries.

International Monetary Fund denial?

In his weekly column in the Sri Lankan newspaper Daily FT on December 13, 2021, former deputy governor of the Central Bank of Sri Lanka, WA Wijewardena, pointed out that several prominent and independent economists of the country have repeatedly appealed to the government to seek the help of the International Monetary Fund. is off.

However, there is little chance that the Sri Lankan government will seek help from the International Monetary Fund. The Daily Mirror newspaper wrote on January 4 that a consensus could not be reached on this issue in the cabinet meeting held on January 3.

Central Bank of Sri Lanka Governor Ajit Nivard Cabral has repeatedly reiterated that Sri Lanka will not seek the help of the IMF. On November 25, 2021, he said in a press conference that the IMF's help would come with conditions and that the agency would pursue its agenda of economic recovery.

News website Economicnext quoted Governor Ajit Nivard Cabral as saying, "This could lead to a devaluation of the Sri Lankan currency. Interest rates could rise and government jobs could be reduced. Our view is that for the time being, we need to follow that reform agenda." Not needed."

But on January 5, the newspaper Daily FT wrote in its editorial that "the condition of the country's economy was like never before. The conditions of the IMF cannot be worse than the crisis the public is facing at the moment. "