Sri Lanka to Restructure Debt, Tax the Rich; Demand for Indian Textiles, Tea Rise Amid Lankan Unrest

Rajapaksa after he disbanded his cabinet, hoping to quell weeks-long street protests over shortages of fuel, power, food and medicine.

With its foreign exchange reserves shrinking quickly, massive debt payments due and the rupee currency slumping, analysts say the government – controlled by Rajapaksa and his elder brother Mahinda, the prime minister – is running out of options.

Reserves dropped 16% to $1.93 billion in March, central bank data showed on Thursday.

“We must look at how to structure the $1 billion international sovereign bond payment maturing in July,” said Ali Sabry, who submitted his resignation to Rajapaksa on Tuesday. “We must go to the IMF, there is no other solution that I can see.” Sabry was moved to finance from the justice ministry on Monday to replace President Rajapaksa’s younger brother Basil Rajapaksa. It was not immediately clear if Rajapaksa had accepted Sabry’s resignation, submitted days ahead of scheduled talks with the IMF for emergency loans.

As the island nation attempts to fast-track the formulation of proposals to present to the IMF President Rajapaksa on Thursday appointed K.M.M Siriwardana, a deputy governor at the central bank who previously worked with the Fund, as treasury secretary.

The $1 billion bond maturing on July 25 was trading at 54 cents in the dollar, its lowest level since spring 2020 when the COVID-19 rout hit global financial markets, data from MarketAxess showed.

Other Sri Lankan dollar-denominated sovereign bonds traded at even more stressed levels, with most changing hands around 40 cents in the dollar.

“We must have political stability to find solutions to the financial crisis,” Sabry said. “We must discuss with the World Bank and we must have a bridge-financing plan with the ADB. If we don’t have stability, who will conduct these talks?,” he said, referring to the Philippines-based Asian Development Bank.

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