- Sri Lanka, facing the crisis of foreign exchange reserves, trapped in the debt trap of China
- Sri Lanka to close its three diplomatic missions abroad for savings
- Order given to all banks – give one quarter of the dollar’s earnings to the government
Sri Lanka on Monday announced the closure of three of its foreign diplomatic missions. Sri Lanka has taken this step to save the ever-decreasing foreign exchange reserves. The country’s central bank has insisted on deregulation of dollars needed to finance essential imports. The Ministry of External Affairs said the Sri Lankan High Commission (embassy) in Nigeria and consulates in Germany and Cyprus would be closed from January.
After Covid, Sri Lanka is struggling with economic crisis and increasing debt of China. Sri Lanka’s oil bill jumped 41.5 per cent to $2 billion in the first seven months of this year compared to last year. To boost its sluggish economy, it has now sought help from India. In a statement, the ministry said that the restructuring has been done to conserve the country’s much-needed foreign reserves and reduce costs related to the maintenance of Sri Lanka’s missions abroad.
Foreign exchange restrictions for locals
A large part of Sri Lanka’s economy depends on tourism which has been badly hit by the COVID pandemic. The government had in March last year imposed sweeping import restrictions to boost foreign exchange reserves, leaving the country short of essentials like fuel and sugar. The three missions are being closed at a time when Sri Lanka’s Central Bank has banned foreign exchange for locals.
Banks will give a quarter of the dollar’s earnings
All commercial banks have been ordered to hand over a quarter of their dollar earnings above 10 per cent to the government. This means that banks will now have even fewer dollars to pay to private traders. Sri Lanka had foreign reserves of just $1.58 billion at the end of November, up from $7.5 billion when President Gotabaya Rajapaksa took office in 2019.