COLOMBO, Sri Lanka (AP) – Sri Lanka has cut imports of agricultural chemicals, cars and even its turmeric, a staple spice as its foreign exchange reserves dwindle, hampering its ability to repay a mountain of debts as the South Asian island nation struggles to recover from the pandemic.
Toothbrush handles, venetian blinds, strawberries, vinegar, wet wipes and sugar are among the hundreds of foreign-made products that have been banned or subject to special licensing requirements designed to reduce a trade deficit which has worsened the country’s financial dilemma for years.
Shortages are pushing up the prices of many consumer goods, from bread to construction materials to gasoline, sparking protests among Sri Lankans tired of the protracted crisis.
Thusitha Vipulanayake ran out of motorcycles for sale in August 2020. Usually able to sell at least 30 a month, and a dozen motorized rickshaws, he now gets by selling locally grown bottled turmeric paste and LED bulbs.
“This is something we weren’t expecting,” Vipulanayake said as he sat in his empty motorcycle showroom along a road outside the capital Colombo.
Sri Lanka was in trouble before the pandemic hit, bringing down a tourism industry that is a vital source of foreign exchange earnings. It normally provides jobs for over 3 million people and accounts for around 5% of GDP.
Visitors were already staying away after deadly suicide bombings Easter Day 2019 killed more than 250 people. But efforts to revive the industry are collapsing as the country suffers a new wave of COVID-19 infections.
Today, the country’s foreign exchange reserves are barely sufficient to pay for three months of imports at a time when large repayments of its foreign debts fall due, straining its financial system. Oil Minister Udaya Gammapilla recently said the country was short of cash to pay for oil imports.
To preserve valuable foreign currency, the government restricted transactions in US dollars. Despite limits imposed last year, imports still exceed the country’s exports of tea, rubber, seafood and clothing.
“The state of the economy is in dire straits, there is no doubt about it,” said Muttukrishna Sarvananthan, head of the Point Pedro Institute of Development economic research group.
Sri Lanka is due to repay its external debt totaling $ 3.7 billion this year, having paid $ 1.3 billion so far. This is on top of local debt, according to the central bank. Its currency has gradually weakened against other major currencies, making these repayments more costly in local terms.
Fitch Ratings downgraded Sri Lanka to its CCC category, indicating a real possibility of default. It indicates that the country’s external debt will increase to $ 29 billion over the next five years.
And it faces the possible loss of preferential trade status for its clothing exports to Europe, amid criticism of a terrorism law that critics say violates human rights.
To help replenish its reserves, Sri Lanka secured a $ 1.5 billion swap facility from China earlier this year. A $ 400 million swap from India will be available by August, according to the Central Bank.
Officials say they hope to attract more foreign investment and avoid seeking help from the International Monetary Fund, which tends to impose strict political conditions on its borrowers.
The government’s April decision to ban the use of agricultural chemicals, ordering farmers to switch to organic farming, aimed to save $ 400 million a year on imports.
But Sri Lankan farmers rely heavily on these chemicals. Some have said they are using cow dung, poultry litter and compost to make up for the loss of fertilizer, but the sudden change is hurting yields.
“The country’s leaders could have done better to make decisions,” said farmer Pathmasiri Kumara, who worked in his field in Welimada, a village in the central hills of the tropical island country. “These problems arise when you don’t come to see the farmers and make decisions sitting on swivel chairs.
“Look at this potato plant, it’s not growing the way it should because there is no fertilizer,” Kumara said. “It’s a very sad situation. It is our main crop and if we do not get chemical fertilizers we will lose our income all year round, at least by half.
The pressure is also on clothing manufacturers, as the European Union revises its favorable tariff treatment for Sri Lankan products under the GSP, or generalized system of preferences. It eliminates import duties on much of Sri Lanka’s products, such as textiles, tea and fish, a benefit worth some $ 360 million a year, according to the EU.
A decision is not expected until next year. But the impact of losing concessions would be “quite severe,” said Sirimal Abeyratne, professor of economics at the University of Colombo.
About 20% of Sri Lanka’s total exports go to EU countries. Another 10% goes to the UK, which could follow the EU’s lead if it suspends its GSP status, Abeyratne said.
Meanwhile, Sri Lankans resent import restrictions that are slowing activity in various industries.
Metlal Weerasuriya waited five months to buy a toilet for his house.
“I have been to many retail and wholesale stores. They were running out of stocks and there was a waiting list to get one, ”said Weerasuriya, a reporter. Finally, he found an ad online.
“So it took at least five months to buy a dresser and finish the bathroom,” he said.
Vipulanayake, the motorcycle dealer, said he relies on the income from a modest rubber plantation he owns, in addition to his sales of various other products, to get by.
He is determined to keep his showroom, which is in a prime location.
“I believe everything will be fine and the bikes will come,” he said. “Maybe I’m just dreaming, because things are so uncertain.”