Sri Lanka names new ministers as old team quits amid economic crisis

Sri Lanka named a new finance minister as President Gotabaya Rajapaksa began reworking his cabinet to pull the economy out of its worst crisis in decades.

Ali Sabry will take over from Basil Rajapaksa as the head of finance, while G.L. Pieris will continue as the foreign minister, Sudewa Hettiarachchi, director general of the Presidential Media Division, said by phone Monday. Sabry is among the key decision makers as the president prepares for a bailout from the International Monetary Fund. 

The reshuffle comes amid Sri Lanka’s struggle with a severe dollar shortage that prompted capital controls and import curbs. With the government running low on funds to pay for purchase of essentials such as food and fuel, the nation is looking to recast debt to avoid a default, while battling other challenges in the form of Asia’s fastest inflation and a currency that has collapsed.

Sabry and Pieris are part of a team that will oversee debt restructure, key to obtaining support from the IMF. Central bank governor Ajith Nivard Cabraal, who had opposed aid from the multilateral lender, offered to quit separately following a decision by members of the previous cabinet to resign en masse.

Dinesh Gunawardena and Johnston Fernando, both ministers in the outgoing cabinet, retained their education and highways portfolios in the new team, the president’s office said in a statement. A permanent cabinet will be appointed following discussions with all political parties in parliament, it said. 

The shakeup follows the government’s attempt to quell growing social unrest by imposing emergency rule, barring gatherings and ordering Internet service providers to restrict social media access. Inflation is running at almost 19% and citizens have had to endure daily power cuts of as long as 13 hours as diesel runs out due to a foreign exchange crisis.

Citizens across the island on Sunday defied a curfew and staged protests on streets calling for the ouster of the president due to soaring living costs. Social media groups are now calling for a “Black Monday,” asking people to wear the color to show unity and anger over the current situation.

Rate Decision

The central bank governor’s offer of resignation came a day before the authority was due to announce its interest rate decision. 

Cabraal, a veteran policy maker who was named governor of the Central Bank of Sri Lanka in September, has added to rate hikes -- raising by a total 200 basis points from the pandemic-era low -- to combat inflation that’s pushing toward 20% amid risks from Russia’s war in Ukraine.

“The resignation has led to a lot of volatility in the market but this also opens up a new way forward for policy and strategy,” said Dimantha Mathew, head of research at First Capital Holdings Plc. “The monetary authority will need to, on priority, look at stabilizing both exchange rate and inflation by raising interest rates.”

The IMF last month said Sri Lanka faces a “clear solvency problem” due to unsustainable debt levels, as well as persistent fiscal and balance-of-payments shortages.

Sri Lanka, whose trade deficit doubled to $1.1 billion in December, had about $2.3 billion of foreign-exchange reserves in February and faces a $1 billion dollar bond repayment in July.