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Sri Lanka Needs a Currency Board

The time has come for Sri Lanka to face its financial demons head-on. It will be a difficult fight, but a currency board – which strips the government and the central bank of the opportunity to mismanage the budget and the exchange rate – vastly improves its chances of winning.

COLOMBO – The war in Ukraine has generated an economic tidal wave, which is crashing over countries near and far. Among the more far-flung is Sri Lanka, half a world away from the battlefield, where surging food and fuel prices have supercharged a downward spiral that was already underway. Now, the island is being rocked by street protests, and every member of the cabinet – except Prime Minister Mahinda Rajapaksa, the brother of President Gotabaya Rajapaksa – has resigned. To save Sri Lanka from economic collapse and sociopolitical disaster will require radical action.

Currently, no credible discussions on a viable strategy to meet the deepening crisis are taking place. So, while escalating protests may bring about a change of government, it is far from certain that this would lead to improved social or political conditions. Whoever is in charge, the imperative remains the same: Sri Lanka must address the grave economic crisis it faces, beginning by putting its public finances in order. 

There is no time to lose. Finance Minister Ali Sabry, who has been on the job barely a month, says that the country’s foreign-exchange reserves now stand at under $50 million. And with around $7 billion of the country’s $51 billion in external debts due this year, a debt moratorium has been put in place. Moreover, the $600 million the World Bank has given to provide for essential food imports won’t be nearly enough to stop the financial bleeding.

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