Sri Lanka needs $5bn in next six months to ensure basic living standards, says PM

‘Only establishing economic stability is not enough, we have to restructure the entire economy’

Cash-strapped Sri Lanka will need at least $5bn (£4bn) in the next six months to ensure the supply of food, fuel, cooking gas and more essentials to provide basic standards of living, said the prime minister of the country struggling with its worst financial crisis in more than 70 years.

Ranil Wickremesinghe said in parliament that Sri Lankans are staring at a tough three weeks to obtain essentials, but urged people to be patient.

“Only establishing economic stability is not enough, we have to restructure the entire economy,” he said.

The island nation needs $3.3bn for fuel imports, $900m for food, $250m for cooking gas and $600m more for fertilisers this year, he said.

Mr Wickremesinghe, who is also finance minister, is working on an interim budget to balance finances by slashing government expenses and increasing annual welfare spending to $500m from about $350m.

The Indian Ocean nation of 22 million people has been hit by the economic crisis as a chronic shortage of foreign currency to import basic necessities and soaring inflation has spelled devastation for people, who have hit the streets in mass protests demanding supplies of basic food, medicines and fuel.

It is also on the edge of bankruptcy after defaulting on its debt for the first time in its history and is now seeking help from multilateral money lending banks as well as neighbours India, China and Japan.

The United Nations has arranged a worldwide public appeal to help the island nation and is expected to provide $48m in assistance over a four-month period for food, agriculture and health sectors.

Police use a water canon to disperse students from during an anti-government demonstration on 29 May in Colombo (AFP via Getty)

It is also renegotiating with China the terms of yuan-denominated swap worth $1.5bn agreed last year. Accordimg to the terms, the swap could only be used if Colombo maintained reserves equivalent to three months of imports.

But as reserves are well below the required level, Sri Lanka has requested China to reconsider the terms and allow the swap to fund essential imports.

On Tuesday, the government also approved a $55m credit line from India’s Exim Bank to fund 150,000 tonnes of fertiliser imports – a critical requirement to maintain crop production.

“Farmers do not need to be worried about not having inputs for the next season,” cabinet spokesperson Bandula Gunawardena told reporters.

Sri Lankan authorities are also discussing a bailout package worth about $3bn with the International Monetary Fund as Mr Wickremesingh urged the organisation to lead a conference to unite Sri Lanka’s lending partners.

“Holding such a conference under the leadership of India, China and Japan will be a great strength to our country. China and Japan have different credit approaches. It is our hope that some consensus on lending approaches can be reached through such a conference,” Mr Wickremesinghe said.

He asked citizens to use the scarce supplies as carefully as possible and to avoid nonessential travel as the scarcity of commodities is expected to run into weeks.

“Therefore, I urge all citizens to refrain from thinking about hoarding fuel and gas during this period. After those difficult three weeks, we will try to provide fuel and food without further disruptions. Negotiations are underway with various parties to ensure this happens,” Mr Wickremesinghe said.

Additional reporting by agencies