Sri Lanka hopes to reach initial agreement with IMF for help

Sri Lanka’s central bank chief says he is hopeful the crisis-ridden island nation can reach a preliminary agreement that could lead to a bailout package with the International Monetary Fund when officials from the financial institution visit Sri Lanka later this month

Sri Lanka (Copyright 2022 The Associated Press. All rights reserved)

Sri Lanka's central bank chief said Thursday he is hopeful the crisis-ridden island nation can reach a preliminary agreement that could lead to a bailout package with the International Monetary Fund when officials from the financial institution visit Sri Lanka later this month.

The Indian Ocean country is facing its worst economic crisis and has been negotiating with the IMF while government leaders in Colombo have said Sri Lanka is effectively bankrupt.

Nandalal Weerasinghe, the governor of Sri Lanka's central bank, said he hoped that IMF officials and Sri Lanka's government could “finalize and reach a staff-level agreement" on the policy package during their meetings.

Sri Lanka announced in April that it is suspending repayment of foreign loans. Its total foreign debt is $51 billion, of which it must pay $28 billion by 2027. The country has said it needs to restructure all of its debt.

Weerasinghe told reporters on Thursday that the agreement being sought with the IMF would give them “a clear picture on debt sustainability and debt targets for us to achieve in the next 10 years.”

Once an agreement is reached, Weerasinghe said, Sri Lanka would approach sovereign bond holders and other external creditors.

"We hope all our creditors will support Sri Lanka once they see the strong macro program endorsed by the IMF," he said.

Sri Lanka’s economic meltdown has triggered a political crisis, with widespread anti-government protests erupting across the country. Massive public protests ousted Sri Lankan President Gotabaya Rajapaksa last month.

Rajapaksa fled the country after thousands of protesters stormed his official residence and resigned in exile. He first fled to Maldives, then to Singapore and is now in Thailand.

The protesters blamed Rajapakasa and his powerful family for years of mismanagement and corruption that have bankrupted the nation and led to unprecedented shortages of essential imports like fuel, medicine and cooking gas.

Sri Lanka’s new President Ranil Wickremesinghe said two weeks ago that his government had initiated negotiations with the IMF on a four-year rescue plan and had commenced the finalization of a debt restructuring plan.

However, Wickremesinghe also said that negotiations with the IMF have been difficult because of Sri Lanka’s bankruptcy and that an expected early August target for an agreement with the agency was not possible. It is now expected in September because of social unrest in the country.

Wickremesinghe was elected president last month to complete the rest of Rajapaksa’s five-year term, which ends in 2024.

Wickremesinghe’s government is preparing a national policy roadmap for the next 25 years that aims to cut public debt and turn the country into a competitive export economy.

Wickremesinghe has stressed that Sri Lanka needs long-term solutions and a strong foundation to stop a recurrence of economic crises.

Two weeks ago, he said the hardships had eased somewhat with reduced power cuts, fertilizers being brought in for cultivation and cooking gas distribution improving.

But many people complain that price hikes of most essential items are unbearable.

Prices of most essentials have tripled in recent months and most people are struggling to pay for basic needs. About 70% of Sri Lankan households surveyed by UNICEF in May reported cutting back on food consumption. Many families rely on government rice handouts and charitable donations.