Cheque returns triple; liquidity crisis coming to a head
Sri Lanka’s liquidity crisis is coming to a head with cheque returns tripling the usual amount during this month.
All entities from large companies to small businesses are defaulting, a banker said noting that it will become worse by next month. He said they simply cannot pay.
“There is no liquidity in the system. The economy is drying up.”
A second banker told the Business Times that the small and medium enterprises are slowly losing business and their predicament is pretty bad. “Next there will be a lot of bad debts and rising non-performing loan ratios in the banking and financial sector,” he said. A third banker confirmed this noting that the stage 3 loans in banks which are essentially where the loans’ credit risk increases to the point where they are considered credit-impaired were high at 7.6 per cent as of December 31, 2021. “This year it will be worse with the moratorium on the tourism sector also coming to a close by the end of this month,” he pointed out.
Economists say that the impending but not yet firm International Monetary Fund (IMF) External Financing Facility (EFF) will not be the panacea to all the country’s problems. They say the annual shortfall of liquidity in the country is way larger than what was predicted last year. “As a result of the world market oil prices soaring by 100 per cent, our annual oil bill followed suit and now for oil we need an additional US$4 billion. The inward remittances from migrant workers are dropping daily due to the exchange rate manipulation started early this year. We have lost nearly $3 billion due to this. With the default announcement a few months ago the country lost access to the international bond market which earlier saw us raising at least $2 billion to $ 3 billion annually,” an economist explained to the Business Times.
He pointed out that the tourism industry was planning to receive $2 billion this year which is not coming in anymore. “The aggregate need in the country is $10 billion and we are nowhere into getting this amount.” As such, he noted that the EFF by the IMF which may be some $ 3 billion will not be sufficient.” Also it will be distributed overtime and it is not clearly sufficient to get the country out of its dire straits, he added.
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