ECONOMYNEXT – Sri Lanka’s main business chambers have called for debt-restructuring after the International Monetary Fund said the country’s debt was unsustainable and also called for market pricing of fuel and electricity and a formal program with the Fund.
Sri Lanka is experiencing severe forex shortages due to money printed to maintain low interest rates of 6.5 percent. Money is being printed from around October despite higher market rates, due to sterilizing reserve sales for imports.
Reserves, which are accumulated savings of past years, are not expected to be used for consumption imports.
Sri Lanka has used 967 million US dollars in reserves for interventions since October.
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Reserves were last used for intervention at current levels in a 2018 currency crisis. In the absence of money printing, reserves are not used for imports, but reserves are slowly collected at a market driven interest rate by contracting credit.
Nine business chambers in Sri Lanka called for the following measures:
Establish a market driven pricing formula for fuel, gas and electricity while also allowing flexibility on the exchange rate. We are of the view that it is better to manage a situation of cost escalations compared to the present shortage of essential items including foreign exchange which is crippling economic activity.
Immediately commence a preemptive foreign debt restructuring process in an orderly manner.
This should involve restructuring of both commercial and non-commercial debt. We feel commencing this process soon will provide a breathing space to allocate the scarce dollars towards essential imports such as fuel and medicines.
Pursue the support of the IMF and formulate a reform program that would provide confidence to the market and private sector with immediate effect.
The private sector,as represented by the Joint Chambers, is ready to support the Government in developing and implementing a program that would help Sri Lanka emerge out of this crisis and stage a strong post-pandemic recovery as envisioned by all stakeholders.
The full statement is reproduced below
Joint Chambers Demand Government to Resolve the Shortage of Forex to Prevent Paralysis of the Economy
The Joint Chambers of Commerce met on March 3rd, 2022 and deliberated on the on-going forex crisis in the country and its impact on business activity and the economy.
Consequent to this meeting, 9 Chambers (whose logos are shown below the text) have agreed to unanimously release the following statement.
The on-going forex crisis has resulted in daily disruptions to the supply of fuel and electricity which are critical for the functioning of all sectors of the economy.
There is also a significant shortage of raw material inputs needed for domestic and export production coupled with an inability to pay suppliers in a timely manner as highlighted in our Joint Chamber release dated 22nd December 2021.
As a result, business activities are coming to a halt and the private sector is deeply concerned of the consequences this would have in terms of business continuity that could reverse some of the gains seen recently in tourism and export sectors.
The consequences of the forex shortage are also impacting the public causing severe hardship on a daily basis while disrupting the livelihoods of SMEs and daily wage workers.
Joint Chambers demand that the Government:
Establish a market driven pricing formula for fuel, gas and electricity while also allowing flexibility on the exchange rate. We are of the view that it is better to manage a situation of cost escalations compared to the present shortage of essential items including foreign exchange which is crippling economic activity.
Immediately commence a preemptive foreign debt restructuring process in an orderly manner.
This should involve restructuring of both commercial and non-commercial debt. We feel commencing this process soon will provide a breathing space to allocate the scarce dollars towards essential imports such as fuel and medicines.
Pursue the support of the IMF and formulate a reform program that would provide confidence to the market and private sector with immediate effect.
The private sector,as represented by the Joint Chambers, is ready to support the Government in developing and implementing a program that would help Sri Lanka emerge out of this crisis and stage a strong post-pandemic recovery as envisioned by all stakeholders.
We are willing to engage with the relevant authorities and policymakers to deliberate this further and take swift action.
