Sri Lanka’s central bank on Thursday restricted the amount of foreign currency individuals can hold to $10,000, with criminal penalties for holding foreign currency for more than three months, the AP reports. Prime Minister Ranil Wickremesinghe also confirmed the country’s first foreign bond default, Nikkei reports.
The country is facing a severe debt and foreign-exchange crisis that appears to be reaching a grim climax. Sri Lanka’s foreign reserves have shrunk from $7.5 billion when president Gotabaya Rajapaksa took power in 2019 to nearly zero today.
Newly minted Prime Minister Ranil Wickremsinghe said the country could not find $5 million to import gasoline, as fuel ships teasingly wait for payment miles from the country’s shore. Sri Lanka urgently needs $75 billion to provide the nation with essentials including fuel, food and medicine, Wickremsinghe said, but the country’s treasury is struggling to find even $1 billion.
The government is actively seeking bridge financing from India and China while officials negotiate a deal with the IMF. These interim loans will “enable the country to buy essential imports until there is an agreement with the IMF, which will then release significant funds from the IMF, World Bank and Asian Development Bank,” former World Bank economist Shanta Devarajan wrote in an email to FrontierMarkets.co.