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Loan from India only in January

09 Dec 2021

  • Attygalle says discussions still ongoing
  • Amount yet to be finalised
  • Official forex reserves at $ 1 b
BY Shenal Fernando The financial assistance sought by Minister of Finance Basil Rajapaksa from India will only be received by January next year, contrary to reports that it has already been received during Rajapaksa’s recent visit to New Delhi, The Morning Business learns. Speaking to us, Ministry of Finance and Treasury Secretary S.R. Attygalle stated that the Government will be seeking to acquire the discussed financial assistance from India as soon as possible, most likely by January. Explaining further, he noted that although the delegation has returned to the country, all efforts will be taken, at the urging of the Finance Minister, to obtain this financial assistance as quickly as possible in accordance with the due process, as this involves public money. Minister Rajapaksa was on an official visit to New Delhi on 1 and 2 December, and reports were circulating that he obtained financial assistance when in India, which would amount to around $ 1.4 billion. However, Attygalle refused to confirm this figure, stating: “We haven’t issued any numbers as of yet; there is a process to be done and right now, I cannot divulge the exact figures at this particular moment.” However, it was previously disclosed to us last month by a senior government source that the Minister of Finance will be seeking to obtain a $ 1.5 billion credit line from India in order to ease pressure on the country’s foreign reserves, while also preventing a scenario where the Government would have to seek assistance from the International Monetary Fund (IMF) to address the current economic crisis. Regardless of the existing ambiguity as to its exact figures, this financial assistance sought from India is expected to involve a currency swap to help Sri Lanka address the existing balance of payment (BOP) issues; a line of credit to cover the importation of food, medicines, and other essential items from India to Sri Lanka; and a line of credit to cover fuel imports from India. Obtaining this financial assistance within the next two months will be critical for Sri Lanka, as its official reserves had fallen to $ 1.6 billion by end-November, down 40% from October. From the remaining reserves, foreign currency reserves amount to only $ 1 billion, which is sufficient to cover only around three weeks of imports, according to Central Bank of Sri Lanka (CBSL) data. This situation is further exacerbated by the fact that over the next two months, the predetermined drains on the country’s reserves in the form of repayment of foreign currency loans, securities, and deposits amount to $ 1.3 billion. These pre-determined outflows include the International Sovereign Bonds (ISBs) repayment of $ 500 million due in January 2022. Therefore, considering the current reserve position of the country and the predetermined drains, it can be reasonably asserted that Sri Lanka is at risk of defaulting on its sovereign debt and will not have sufficient foreign exchange to fund its essential imports such as food, medicine, and fuel over the next two months. Thus, obtaining this financial assistance as soon as possible from India must be a priority for Sri Lanka. Foreign exchange inflows into Sri Lanka have been significantly affected in 2021 as recurrent Covid-19 waves have decimated the tourism industry of the country, and worker remittance through official channels have also fallen significantly due to the premium offered in the black market of around 20% as the Government continues to implement its moral suasion strategy of maintaining the exchange rate at Rs. 203. Remittance inflows through official channels have fallen to $ 317.4 million in October down 99% Year-on-Year (YoY) and cumulative remittance inflows for 2021 have fallen 14% YoY to $ 4.9 billion. October is said to be the fifth consecutive month, where worker remittances recorded a drop. In June, remittances dropped to $ 478 million while in July, August, and September, it dropped to $ 453 million, $ 447 million, and $ 353 million. In contrast, recent data released by the World Bank on 17 November has projected remittance inflows to South Asia to grow by 8% in 2021, supported by high oil prices driving incomes in the Middle East, a key source market for remittances to the region. Remittances to Pakistan were projected to grow by 26%, and remittances to India were projected to grow by 4%.

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