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Moody’s says crisis in Sri Lanka raises policy uncertainty
06 Apr, 2022
Moody’s says the crisis in Sri Lanka raises policy uncertainty, compounding external liquidity and fiscal difficulties.
On 3-4 April, all of Sri Lanka?s Cabinet, with the exception of President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, tendered their resignations, along with the governor of the central bank.
The resignations were partly a response to rising public dissatisfaction and social tensions over high inflation, shortages of essential items and lengthy power cuts, increasing political and policy uncertainty at a time when Sri Lanka is experiencing a severe external liquidity and fiscal crisis and a deteriorating macroeconomic environment. The government declared a state of emergency and imposed a two-day countrywide curfew on 2-3 April after protesters demanding the president’s resignation stormed his home.
“Protracted political uncertainty is likely to hinder progress in obtaining external financing from key development partners or attracting foreign direct investment, or both, because of Sri Lanka’s reliance on capital inflows to repay its sizeable foreign-currency obligations. The difficult political environment could also weigh on policymaking and the economy’s recovery from the pandemic, compounding challenges to fiscal consolidation and government efforts to shore up reserves to service its external debt obligations,” Moody’s said.
Intensifying social unrest and sporadic curfews are likely to further strain the tourism industry, delaying the recovery in tourism receipts that were a crucial part of the government?s plans to bolster foreign-currency inflows before the pandemic. (Colombo Gazette)
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