Colombia, Sri Lanka — 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 on Tuesday.
Prime Minister Ranil Wickremesinghe told lawmakers that recent talks with a visiting IMF mission were fruitful but not as straightforward as in the past.
The South Asian island nation is going through its worst economic crisis in memory. Its residents suffer from severe shortages of basic necessities, food, fuel, cooking gas and medicine, forced to queue to buy limited supplies. The government has closed schools and asked non-essential service employees to work from home.
“Our country has had talks with the IMF many times before. But this time, the situation is different from all those previous occasions. In the past, we have had discussions as developing countries,” Wickremesinghe said.
“But now the situation is different. We are now entering the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation,” he said while explaining a roadmap for economic recovery.
Wickremesinghe said earlier that a preliminary agreement on a bailout had been submitted to the IMF board for approval. “But because of the state of bankruptcy our country is in, we have to submit a debt sustainability plan to them separately. Only when they are happy with that plan can we come to a agreement at the personnel level. It is not a simple process,” he said.
He said Sri Lanka’s financial legal advisers are working on a debt sustainability report to be submitted in August.
Discussions 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 debts worth around $7 billion that were due this year because its exchange levels fell to record lows. The country’s total external debt is $51 billion, of which $28 billion must be repaid by 2027, an average repayment of about $5 billion per year.
Frustrated people have been staging street protests for months and often fight with each other and with police at gas stations.
Wickremesinghe said the Central Bank forecast an economic contraction of 4% to 5% this year. The IMF estimates that Sri Lanka’s economy will contract by 6-7%.
Sri Lanka’s economy has been ravaged by the pandemic, which has compounded long-standing issues of economic mismanagement. Its GDP fell to $76.2 billion in 2021 from $94.4 billion in 2018 and will not return to the level it was in 2018 until 2026, Wickremesinghe said. He said one of the government’s targets was to achieve minus 1% growth by the end of next year.