Sri Lanka to restructure debt, tax the rich; Demand for Indian textiles, tea rises amid unrest in Lanka

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Rajapaksa after dissolving his cabinet in hopes of quelling weeks of street protests over shortages of fuel, energy, food and medicines.

With foreign exchange reserves dwindling rapidly, massive debt payments due and the rupee currency plummeting, government analysts controlled by Rajapaksa and his older brother Mahinda, the prime minister, are running out of options.

Reserves fell 16% to $1.93 billion in March, central bank data showed on Thursday.

“We need to look at how we structure the $1 billion international government bond payment that is due in July,” said Ali Sabry, who handed in his resignation to Rajapaksa on Tuesday. “We have to go to the IMF, I don’t see any other solution.” Sabry was transferred from the Justice Department to the Treasury Department on Monday to replace President Rajapaksa’s younger brother, Basil Rajapaksa. It was not immediately clear whether Rajapaksa had accepted Sabry’s resignation, which had been submitted days before planned talks with the IMF for emergency loans.

As the island nation seeks to speed up the formulation of proposals to be presented to IMF President Rajapaksa on Thursday, it appointed KMM Siriwardana, a deputy central bank governor who had previously worked with the fund, as finance minister.

The $1 billion bond, which matures on July 25, traded at 54 cents in dollars, the lowest level since spring 2020 when the COVID-19 crisis hit global financial markets, data from MarketAxess showed.

Other Sri Lankan dollar-denominated government bonds traded even tighter, with most changing hands around 40 cents of the dollar.

“We need political stability to find solutions to the financial crisis,” said Sabry. “We need to discuss with the World Bank and have a bridge financing plan with the ADB. If we don’t have stability, then who will have these talks?” he said, referring to the Philippines-based Asian Development Bank.

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