COLOMBO, Sri Lanka (AP) – Sri Lanka’s negotiations with the International Monetary Fund over a bailout are more complex and difficult than before because it is a bankrupt country, the country’s prime minister said Tuesday.
Prime Minister Ranil Wickremesinghe told lawmakers that recent talks with a visiting IMF mission have been fruitful, but not as straightforward as in the past.
The South Asian island nation is in its worst economic crisis in memory† People suffer from acute shortages of basic necessities, food, fuel, cooking gas and medicines, and have to wait in long lines to buy limited supplies. The government has closed schools and asked workers other than essential services to work from home.
“Our country has had discussions with the IMF before. But this time the situation is different from all those previous occasions. We have had discussions as a developing country in the past,” said Wickremesinghe.
“But now the situation is different. We are now participating in the negotiations as a bankrupt country. Therefore, we are dealing with a more difficult and complicated situation,” he said, explaining a roadmap for economic recovery.
Wickremesinghe said earlier that a preliminary agreement on a bailout has been submitted to the IMF board for approval. “But due to the state of bankruptcy in which our country finds itself, we have to submit a separate plan about our debt sustainability. Only when they are satisfied with that plan can we reach agreement at staff level. This is not a straight forward process,” he says.
He said Sri Lanka’s financial-legal advisers are working on a debt sustainability report to be submitted in August.
Talks are underway with India, Japan and China to form an aid consortium once a staff-level agreement with the IMF is reached, Wickremesinghe said.
Sri Lanka suspended repayment of foreign debt worth about $7 billion owed this year as exchange rates plunged to record lows. The country’s total external debt is $51 billion, of which $28 billion is due to be repaid by 2027, an average repayment of about $5 billion per year.
Frustrated people have been protesting in the streets for months, often arguing with each other and with the police at gas stations.
Wickremesinghe said the Central Bank is forecasting an economic contraction of 4% to 5% this year. The IMF estimates that Sri Lanka’s economy will contract by 6% to 7%.
Sri Lanka’s economy has been gutted by the pandemic, which exacerbated long-standing problems of economic mismanagement. GDP fell to $76.2 billion in 2021, down from $94.4 billion in 2018, and won’t recover to 2018 levels until 2026, Wickremesinghe said. He said one of the government’s goals was to achieve minus 1% growth by the end of next year.