With the import restrictions, including fuel rationing and the suspension of some foreign debt servicing, the overall demand for the US dollar has reduced.
With the exchange rate moving up, export proceeds and foreign remittances have started flowing in. The exchange rate was allowed to be floated from Ma(fixed rate of Rs.203 per US dollar since September 2021) until May 26, 2022, where the exchange rate had gone up to Rs.377 per US dollar and thereafter, it was some kind of a managed float. The 2022 Central Bank report clearly indicated that as people of Sri Lanka consume a considerable share of imported items, the country’s inflation is affected by the movements in global commodity prices and the depreciation of the rupee against the US dollar. Overall inflation has skyrocketed and recorded as 50 percent annual average for the year 2022, partly due to the imported inflation and public expectations of future price increases. Accordingly, Sri Lanka’s last three quarters’ growth rates (all negative) have been as follows: 3Q 2022: -11.8 percent, 4Q 2022: -12.4 percent and 1Q 2023: -11.5 percent.ĭuring the year 2021, GDP was positive 3.5 percent, despite the negative impact arising from Covid also, the annual average inflation rate was 7 percent in 2021, although the inflation expectations were high during the first quarter of 2022. Prioritising domestic debt restructuring as opposed to economic growthĪs for GDP growth rates, the Census and Statistics Department reported previously that the economy contracted by a staggering 11.5 percent during the quarter, January to March 2023. Attracting foreign direct investments through public-private partnerships becomes a necessary prerequisite, in order to increase GDP as well as reducing future forex borrowings. It goes without saying that the success of this programme would depend on undertaking long-neglected structural reforms and increasing export of goods and services through improving productivity and quality of work, both in the private and government sectors. These are tough targets to be achieved and therefore, the government, private sector, trade unions, key opinion leaders (KOLs in civil society) and all the other stakeholders must work in collaboration towards developing their own areas of activities at optimum levels. In addition, as per the debt sustainability analysis carried out by the IMF, the target of public debt stock to gross domestic product (GDP) is set as below 95 percent of GDP by 2032.įurther, the average annual financing needs of the government in the 2027-2032 period to remain below 13 percent of GDP and forex debt servicing to remain below 4.5 percent of GDP in each year over 2027-2032. This debt service reduction during 2023-2027 is to be sufficient to close the external financing gap. In other words, it is expected that the debt restructuring effort will take care of approximately US $ 3 billion per year, totalling US $ 14.1 billion over a period of five years. According to the Central Bank, in order to achieve debt sustainability, Sri Lanka needs to achieve specific debt financing and debt servicing-related targets.Īccordingly, the external financing gap during the remaining programme period of five years ending 2027 works out to US $ 22.3 billion, which is financed through the International Monetary Fund (IMF)/Asian Development Bank/World Bank support, amounting to US $ 6.7 billion, total debt restructuring relief of US $ 14.1 billion and a sum of US $ 1.5 billion International Sovereign Bonds (ISBs) to be obtained in 2027. The total public debt is around US $ 92 billion as at Mait was only US $ 79 billion by end-September 2022, as announced by the Finance Ministry, which is an increase of US $ 13 billion (or a 16 percent increase).ĭuring the last one year, the government has been working on restructuring the debt, including the domestic debt optimisation (DDO) process, with the intention of achieving what is known as debt sustainability.
According to the latest figures published by the Finance Ministry, the present administration continues to borrow more money, both domestic and foreign funds and thus increasing the overall debt stock.
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