Non-residents will now have to pay in foreign currency in Sri Lanka, central bank says
Tourists traveling to Sri Lanka will now have to pay for their goods and services in foreign currencies, the Central Bank announced on Thursday, as part of its efforts to inject more liquidity into the economy and build up the country’s depleted foreign exchange reserves.
The guidelines were issued by the Central Bank of Sri Lanka with a view to enhancing macroeconomic stability.
As a result, the apex bank has ordered registered tourist establishments to accept foreign currency only for services rendered to persons residing outside Sri Lanka.
“All registered tourist establishments must accept foreign currency only for services rendered to persons residing outside Sri Lanka,” said the January Monetary Policy Review, released by the Central Bank of Sri Lanka.
This comes against the backdrop of the Central Bank raising the standing deposit facility rate and the standing lending facility rate by 50 basis points each to 5.50% and 6.50% respectively to control interest rates. inflation, curb imports and avoid a potential default later in the year.
In his statement, he said that “the measures will limit the possible buildup of underlying demand pressures in the economy, which would also help ease pressures in the external sector, thereby promoting greater macroeconomic stability.” .
The pandemic has also dealt a blow to the economy heavily dependent on tourism, with the government estimating losses at $14 billion over the past two years.
The economy is also estimated to have contracted by 1.5% in July-September 2021.
Sri Lanka has underlined its commitment to repay the $4 billion owed to investors this year, although analysts believe it could face its first-ever default unless it boosts dollar inflows .
“We want to send a very clear message that we want inflation to be under control,” Central Bank Governor Ajith Nivard Cabraal told reporters on Thursday.
He also ruled out an IMF bailout. “People are fixated on the IMF. Our programs have tremendous merit,” he said.
The moves come barely a week after New Delhi announced a $900 million loan to Colombo to replenish its depleted foreign exchange reserves and import food amid shortages of nearly all basic commodities in Sri Lanka. .
India on Tuesday announced a $500 million line of credit to help Sri Lanka purchase petroleum products as the island nation grapples with a massive fuel and power crisis.
Last week, Sri Lankan Finance Minister Basil Rajapaksa held talks with External Affairs Minister S Jaishankar during which the two ministers discussed India’s investment projects and plans which would strengthen the economy of the island nation.
During the meeting, the two ministers noted that the recent steps taken by Sri Lanka to jointly upgrade Trincomalee oil parks will boost investor confidence, in addition to bolstering Sri Lanka’s energy security, he said. added.
Earlier this month, Sri Lanka signed an agreement with India to jointly redevelop the strategic WWII-era oil tank farm in the eastern port district of Trincomalee, in a new stage of the partnership. bilateral economic and energy.
India’s provision of $400 million to Sri Lanka under the SAARC Currency Swap Agreement and the postponement of the ACU settlement of $515.2 million for two months are essential aid in the current situation of foreign exchange shortage in Sri Lanka, according to analysts.
Sri Lanka has also paid $500 million owed on sovereign bonds from its depleted foreign exchange reserves despite pleas from experts to defer the payment and use the sum to import essential items and medicine.
Including the latest payment, Sri Lanka now has external debt obligations exceeding $7 billion in 2022, including the repayment of another bond worth $1 billion in July.
The Central Bank said Thursday that gross official reserves stood at $3.1 billion at the end of 2021. This includes a Chinese currency cross-currency swap of $1.5 billion.
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