Foreign reserves cover falls to just three days of imports

• Usable foreign reserves at a paltry US $ 150mn, adequate for just three days of imports 
• This was even after SL suspended most of its foreign debt repayments earlier this month
• In this backdrop, further austerity, rate hikes and rupee depreciation could decimate economy, people

Sri Lanka’s import cover of usable external reserves has fallen into a deeply scarier level of just three days, even after the country suspended foreign currency obligations earlier this month.

All eyes are now on India and China for an immediate rescue of the Sri Lankan economy, which is now in the pits, as the much-anticipated bailout from the International Monetary Fund (IMF) could be at least six to 12 months away, as it was made clear that no immediate rapid financing support was forthcoming.

According to Chayu Damasinghe, a frequent commentator on macroeconomics and Product Head at Frontier Research, a macroeconomic research firm, Sri Lanka’s foreign currency reserves have slipped to US $ 1.72 billion, of which only usable reserves are at a paltry US $ 150 million, which is barely sufficient for three days of imports. Sri Lanka has a US $ 1.57 billion equivalent Chinese yuan-denominated swap facility in its foreign reserves. By March-end, Sri Lanka’s official reserves, according to the Central Bank’s data, were measured at US $ 1,939 million. 

“There’s an absolutely critical piece of economic information that I feel too many people are missing. Our reserves cover is likely less than three days of imports. That is so ridiculously low,” Damasinghe said in a series of tweets on Tuesday 

“What this means is that if for just a few days, India doesn’t give us support—idk India has a big flood or the officer in charge of SL support gets a case of the flu, we have less than three days of backup money,” he tweeted.  Under these circumstances, he forecasted that the next few months would be “terrible” for the Sri Lankans, if Indian assistance doesn’t come. Sri Lanka’s economy is in dire straits and further rate hikes, rupee depreciation against the dollar and more austerity would completely kill it.  But this is what the IMF demands from the Sri Lankan authorities and so do other neoliberal economists and commentators, who lead the mainstream economics and politics in the country and around the world. 

“The Central Bank doesn’t have a magic ‘inflation brake’, specially when inflation is driven by energy prices and supply problems. There’s a downside to hiking interest rates, specially in times of high uncertainty, lower employment and incomes. This is simply ignored by many commentators,” Philipp Heimberger, an economist at the Vienna Institute for International Economic Studies, said yesterday.