Usable foreign reserves less than US$ 50 mn – Sabry

Finance Minister Ali Sabry, PC informed Parliament yesterday that Sri Lanka’s usable foreign reserves are less than US$ 50 million at present.

Delivering his first special statement in his capacity as Finance Minister, he warned that there are critical developments that need urgent attention to address the country’s dire socio-economic and political challenges. “The root causes of these challenges go back to several decades of economic

history although more recent developments have aggravated the situation into an acute crisis. Inflation has risen to extremely high levels making the cost of living unbearable, foreign exchange reserves have depleted significantly, and the exchange rate has rapidly depreciated, all of which have contributed to the crisis. A foreign debt repayment standstill has been announced as an interim measure. There is a shortage of essential items, including fuel, LP Gas, pharmaceuticals, and raw materials while power outages continue, and people are demonstrating on the streets against their economic hardships,” he noted.

While noting that macroeconomic weaknesses in the economy have been decades in the making, including fiscal instability, accumulated debt overhang, low productivity and persistent current account deficits. However, he said that recent shocks such as the COVID-19 pandemic and the Ukraine conflict have exposed these underlying weaknesses.

“However, we should also be humble enough to admit that this situation has occurred due to some of the misaligned and imprudent policies implemented in the recent past as well. This is indeed a serious situation. I believe the time has come to follow a professional approach in resolving these issues rather than being swayed by ideological inclinations. I accept the fact that the aggravation of the issues was due to the delay in restoring fiscal and debt sustainability and failing to preemptively address the decline in foreign reserves. Sri Lanka should have focused on regaining capital market access by establishing a credible path of macroeconomic stabilization, supported by institutions such as the IMF,” he added. We must make changes, he said, adding that changes to the way we manage the fiscal operations and the entire economy are a must. “We should undertake reforms, to remove bottlenecks that hinder our economic progress. We must be futuristic and wise to take decisions in the name of the progress of the economy, progress of the country.

The Parliament must give priority to implement tax reforms to increase government revenue and rationalize expenditure whilst ensuring public investment in critical areas such as education, healthcare, and social protection. Macroeconomic policy must be tailored towards boosting national savings, channeling public and private investment towards productive sectors, whilst driving productivity and competitiveness in all aspects of the economy.”

The Minister also revealed that a new Budget proposal, that will increase income taxes, will be tabled in Parliament in the near future.

Minister Sabry also stated that the present conflicting situation could last around two years.

“The decision to seek the assistance of IMF is important in this context. An IMF programme will be a catalyst to undertake these much-needed reforms and will provide a signal to the rest of the world that we are serious in addressing our economic difficulties. But we must realise that the economic reform programme we embark upon must be a programme with Sri Lankan ownership. We must put forward a professional and analytically robust economic plan, where the IMF will also provide technical assistance and then endorse. Without that Sri Lankan ownership, and without broad consensus of the legislature, we would not succeed in providing permanent solutions for our longstanding economic issues,” he noted.

The Finance Minister also claimed that reaching an agreement with the International Monetary Fund could take up to six months.

Sabry noted that it is the responsibility of all parliamentarians to work as a team to better understand the situation and come up with solutions with much needed reforms with the support of all the members.

“There is no doubt that many of these reforms will be painful. Hence, we must take care of the vulnerable segments in the society through appropriate robust social safety nets,” he said, appealing to the citizens of Sri Lanka on this matter at this critical juncture.

“I wish to say that we hear your voice very well. What we need to do is make corrections to the previous mistakes and put the fiscal operations and for that matter, the country’s future path, in the right direction. It will be very challenging, but we must do it for the betterment of the present generation as well as the generations to come,” he added.

Sabry concluded, “A Journey of a Thousand Miles Begins with a Single Step”.

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