– Sri Lanka’s usable foreign exchange reserves have plummeted to $500 million.

– Local elections in Sri Lanka have been postponed due to lack of funds.

– China has not yet come on board with the IMF and Paris Club on debt restructuring for Sri Lanka.

– US and Japan are being looked at as possible sources for loans to Sri Lanka.

– India has offered full support to Sri Lanka based on the IMF’s recommended debt sustainability analysis.

The economic crisis in Sri Lanka has deepened as the usable foreign exchange reserves have fallen to a mere $500 million. Due to the lack of funds, the local elections scheduled for 9 March have been postponed, and new dates are expected to be announced on 3 March. Despite the Ranil Wickremesinghe government reporting foreign exchange reserves of $2 billion, it has been revealed that $1.5 billion is from China, which can only be used under strict conditions or not at all if the country defaults on its debt payments.

The situation in Sri Lanka is critical, with China still to come on board with the IMF and Paris Club on debt restructuring for the Island nation. The US and Japan are the only hope for providing loans on arrears, and all eyes are on them to push the IMF and Paris Club of creditors to bail out Colombo. India has offered full support to Sri Lanka based on the IMF’s recommended debt sustainability analysis.

However, China’s problem is that if it goes out of its way to support Colombo, it will also have to help a long list of nations on the verge of loan default on the count of Belt Road Initiative (BRI) in Africa. Even with Pakistan, China’s favourite client state, it has only refinanced $700 million worth of past debt without any grant in aid or taking a haircut to help out the Islamic Republic from the worsening debt crisis.

The economic and political situation in both Sri Lanka and Pakistan is quite similar, with established political parties facing huge anti-incumbencies. In Sri Lanka, a general election, if and when it happens, will lead to the revival of left-wing parties, whereas in Pakistan, there is no viable political alternative to the current lot, including once upon a rising star and now discredited Imran Khan Niazi.

In both countries, politicians are waiting and watching the unfolding political crisis, as none want to get involved in the present mess. The situation in Sri Lanka is quite concerning, with no clear way out, and the country may need to rely on the US and Japan for loans to avoid further worsening of the crisis.

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