Sri Lanka closes 3 embassies as dollar crisis worsens
2 Min Read
As the central bank decides to tighten control on the dollar amid an economic crisis, three foreign diplomatic missions close down in parallel.
-
The Central Bank of Sri Lanka is restructuring the country's economy after a hard-hitting pandemic.
On Monday, Sri Lanka announced that it will be closing down 3 diplomatic missions to save foreign currency reserves. The Central Bank of Sri Lanka has imposed tighter controls on dollars which they need in order to finance essential imports.
The country's embassies in Nigeria, Germany, and Cyprus will be closed as of January as Sri Lanka undergoes economic restructuring, according to the foreign ministry. The measures to tighten controls on dollars and close down the embassies happened on the same day.
"The restructuring is undertaken with a view to conserving the country's much needed foreign reserves and minimizing expenditure related to maintenance of Sri Lanka's missions overseas," the ministry said in a statement.
The economy, mainly dependent on tourism, has been damaged by the pandemic, in addition to the government's policies which had banned imports last year to uphold forex reserves. This triggered some shortages in fuel and sugar, among other shortages.
The policies required all commercial banks to hand over one-fourth of their dollar earnings to the government, up from 10%, coercing them to cut down imports from private traders as they will have fewer dollars to do so.
When President Gotabaya Rajapaksa took office in 2019, Sri Lanka's foreign reserves were at $7.5 billion, which have decreased to $1.58 billion by the end of November 2021.
Food shortages were exacerbated by the government's ban on agrochemical imports. Upon witnessing such a situation, the government then lifted the ban last month after vast crop failures and intense farmer protests.
Tea for oil?
Last week, Iran agreed to use Ceylon tea as payment for a $251 million oil debt by Sri Lanka.
The oil was supplied to Sri Lanka approximately 9 years ago; although consumption has decreased in recent years, Ceylon tea made up almost half of the Iranian consumption of tea in 2016.
According to Alireza Peyman-Pak, the head of the Trade Promotion Organization, the agreement will help sanctions-hit Iran to avoid using up limited hard cash to pay for shipments of the commonly used commodity.
