COLOMBO – Sri Lanka’s central bank has secured foreign exchange to pay for fuel and cooking gas shipments that would reduce the crippling deficit, its governor said Thursday, but police fired tear gas and water cannons at student protesters.
Most of Sri Lanka’s petrol stations have dried up as the island nation struggles with the most devastating economic crisis since independence in 1948. At some pumps in the commercial capital, Colombo, dozens of soldiers in battle gear lined up holding plastic jerry cans and patrolling the streets with assault rifles. The traffic was light.
Residents said most people were staying at home due to lack of transportation.
Hundreds of students carrying black flags marched in the central Fort area of Colombo, chanting anti-government slogans. According to a Reuters eyewitness, police repeatedly fired tear gas and water cannons to push them back.
Central Bank Governor P. Adequate dollars have been provided for shipments of fuel and cooking gas, $ 130 million from the World Bank and part of remittances from Sri Lankans working abroad, Nandalal told a news conference in Warasinghe.
He was speaking after the central bank set interest rates at a policy meeting, citing a huge 7 percent increase in April, saying it was working through the system.
The country was more politically and economically stable, Warasinghe said, adding that he would remain in office. He told reporters on May 11 that in the absence of political stability he would resign within two weeks because any move by the bank to address the economic crisis in the wake of the unrest would not succeed.
Opposition MP Ranil Wickremesinghe was named prime minister last week and has appointed four new cabinet members. However, he has not yet announced the name of the finance minister.
Inflation may rise further to 40% in the next few months, but it is largely driven by supply-side pressures and bank and government measures are already controlling demand-side inflation, the central bank governor added.
Inflation was 29.8% in April and food prices rose 46.6% year on year.
Sri Lanka’s economic crisis is compounded by the Kovid-19 epidemic, a tourism-dependent economy, rising oil prices and the reduction of populist taxes by the government of President Gotabaya Rajapaksa and his brother Mahinda, who resigned as prime minister last week.
Other reasons include the high price of subsidized fuels and the decision to ban the import of chemical fertilizers, which has devastated the agricultural sector.
“It’s an economy that has not yet fully recovered from the epidemic,” said Christian de Guzman, Moody’s senior vice president at Sovereign Risk. “Tourism, one of the engines of their growth, has not returned.”
Sri Lanka also now officially defaults on its sovereign debt as a so-called grace period to pay off some already-defunct bond interest, which expires on Wednesday.
Wiresinghe said the debt restructuring plan was almost finalized and he would submit a proposal to the cabinet soon.
“We’re in pre-emptive default,” he said. “Our position is very clear. Until the debt is restructured, we will not be able to repay.”
The central bank said energy and utility prices needed to be revised urgently, and analysts said the prime minister’s ability to push for reforms through parliament and quell public anger would be crucial.
“Critical reforms and other measures need to be introduced in parliament to test their support and see if they really have consensus and stability,” said Shehan Kure, head of research at Equity Stockbrokers in Colombo.
He added, however, that the situation has taken a turn for the better. “Given that there was a point where it was even harder to find a governor, it was a good thing he decided to stay,” Kure said.
A spokesman for the International Monetary Fund said on Thursday that the fund was closely monitoring developments and that a virtual mission in Sri Lanka was expected to conclude technical discussions on a possible lending program in the country on May 24.
Vikramasinghe, speaking in Parliament, said the government was working to release six fuel consignments arriving at the Colombo port.
“They have two shipments of petrol but it will not end the deficit,” he said, adding that supply was cut off only until mid-June.
“Our goal now is to reduce the lines and find a way to start a fuel reserve so that fuel can be found even if a few shipments are missed.”
Although he has enough opposition. Protesters demanding the removal of the brothers in Rajapaksa say he is their hardliner.
(Additional report by Swati Bhatt, David Lauder and Georgina do Rosario; Written by Raju Gopalakrishnan; Edited by Robert Bircel and Chizu Nomiyama)