Sri Lanka closer to default as tourism and tea exports drop
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The risk of default has increased in Sri Lanka as tourist numbers and tea exports are negatively impacted by the conflict in Ukraine.
In recent years Sri Lanka has invested heavily in promoting holidays to citizens from Ukraine and Russia. Last year tourists from Ukraine were amongst the first to visit the island following the government's reopening of borders. Almost a quarter of all tourist arrivals in Sri Lanka this year were from Russia and Ukraine, Bloomberg reports. As the conflict in the Ukraine escalates following Russia's invasion, it is expected that tourists, which provide a vital source of foreign currency to the country, will drop. Last week Ukrainian tourists in Sri Lanka staged a protest outside the Russian embassy in Colombo
The strict economic sanctions on Russia will damage the exports of tea from Sri Lanka. Russia was the third-biggest buyer of tea from Sri Lanka over the past two years and rose to second place in January. In total it is estimated that tourism and tea earned Sri Lanka more than USD $260 million this year, Bloomberg reports. This figure is due to be severely impacted following the escalation of conflict in Ukraine. Sri Lanka which faces a forex crisis is due to make debt repayments of USD $5.7 billion in 2022, it's foreign reserves dropped to USD $2.36 billion in January. The January foreign reserves only provide 1.4 months worth of import cover. However, critics have pointed out that the actual number to be at USD $800 million of useable reserves, roughly 3 weeks worth of imports. The USD $2.36 billion includes the Chinese swap of 10 billion yuan, which equals roughly USD $1.5 billion. The holding of yuan although bolstering the nation's reserves is not being used to finance vital imports or settle debt repayments as the country spirals into a deepening economic crisis. As the island nation battles with rising inflation, essential good items have reached record highs restricting vulnerable households access to food.


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