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COLOMBO: Sri Lanka will introduce new laws to attract investment over the next three years, while policies to develop exports, tourism and remittances will be accelerated in a bid to rebuild foreign exchange reserves, President Gotabaya Rajapaksa said on Tuesday ( January 18).

In a speech to parliament, Rajapaksa said a debilitating foreign exchange shortage was inevitable unless spending was well managed.

“If we fail to control our spending, there will be a currency problem in the near future,” Rajapaksa added.

“There must be a great development in the areas of foreign exchange to develop exports, tourism, remittances and information and communication technologies.”

The island nation is up to its neck in debt, and although the central bank confirmed to Reuters that it had already released $500 million to pay off an international sovereign bond due on Tuesday, most of it still remained to be paid.

In the remainder of 2022, Sri Lanka must pay off $4 billion in debt, and the next tranche of a $1 billion international sovereign bond is due in July. Official reserves stood at a meager $3.1 billion at the end of December.

The reserves were completed last week through a $400 million swap with neighboring India, and Sri Lanka is negotiating a further $2.5 billion through credit lines from India and Qatar.

However, Sri Lanka’s ratings have been downgraded several times by rating agencies in recent months due to concerns about a possible debt default. The government has said it is committed to meeting all debt payments, but has ruled out seeking help from the International Monetary Fund (IMF).

“Sri Lanka’s currency challenge is a symptom of larger structural problems in its economy, so it won’t be enough to just focus on improving inflows,” said Dhananath Fernando, an economic analyst at Colombo-based think tank Advocata.

“The government must commit to broader reforms in state-owned enterprises, tax reforms and market-led rupee adjustments to solve its financial crisis, or we will be constantly fighting fires.”

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