Sri Lanka Forex Emergency Worsens, Food Emergency Declared

Sri Lanka declared a state of emergency on Aug. 31 as food shortages worsened after the country indefinitely banned imports to save its emptying foreign reserve.

Importers have had trouble funding essential food and medicine items after Sri Lanka’s foreign reserves fell to $2.8 billion at the end of July 2021 from $7.5 billion in 2019.

President Gotabaya Rajapaksa tightened regulations to control hoarders of essential food which have largely caused food shortages over the past weeks.

Sri Lankan authorities have appealed to its citizens to consume fuel, its main import, sparingly so that foreign exchange can be used to fund essential food and medicine.

Fuel rationing may be introduced later in the year if consumption does not go down.

Sri Lanka has been printing more money in 2020 to 2021 due to failed bond auctions, which weakened the rupee by 20 percent against the dollar and triggered foreign exchange shortages.

Sri Lanka banned major imports such as motor vehicles, alcohol, and spices since March 2020 to save hard currency.

The Central Bank of Sri Lanka increased its benchmark interest rate to 5 percent from 4.50 percent since November 2018 to support foreign reserves.

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