Sri Lanka will step up appeals to China and India

Significance

Sri Lanka’s foreign exchange (forex) reserves fell to USD1.6bn at end-November, enough to finance only about one month’s imports. Colombo has in recent years relied on macroeconomic support from key partners Beijing and Delhi, but its relations with these players have come under some strain recently.

Impacts

• Colombo will only turn to the IMF if its outreach to friendly countries fails to yield sufficiently favourable results.
• The central bank will strongly consider raising interest rates, having kept them steady at two policy meetings since hikes in August.
• Worsening economic hardship could prompt an increase in anti-government protests.