Crisis-hit Sri Lanka needs $5 billion, essential aid from China

Newly appointed Prime Minister Ranil Wickremesinghe arrives at a Buddhist temple after his swearing-in ceremony amid the country’s economic crisis, in Colombo, Sri Lanka May 12, 2022. REUTERS/Dinuka Liyanawatte

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COLOMBO, June 7 (Reuters) – Sri Lanka will need $5 billion over the next six months to provide basic living standards and is currently renegotiating the terms of a yuan-denominated swap worth 1 $.5 billion with China to finance essential imports, the former said the minister on Tuesday.

The island nation’s worst economic crisis in seven decades has led to a foreign exchange shortage that has blocked imports of essentials such as fuel, medicine and fertilizer, prompting devaluation, street protests and a change of government .

To ride out the turmoil, Sri Lanka will need about $3.3 billion for fuel imports, $900 million for food, $250 million for cooking gas and another $600 million for fertilizers this year, Prime Minister Ranil Wickremesinghe told parliament.

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The central bank estimated the economy would contract 3.5% in 2022, Wickremesinghe said, but added he was confident growth could return with a strong reform agenda, debt restructuring and a international support.

“It is not enough to establish economic stability, we need to restructure the whole economy,” said Wickremesinghe, who is working on an interim budget to balance struggling public finances.

“We must achieve economic stability by the end of 2023.”

The Indian Ocean nation of 22 million people is negotiating a loan package worth around $3 billion from the International Monetary Fund, in addition to aid from countries such as China, the India and Japan.

On Tuesday, the cabinet approved a $55 million line of credit from India’s Exim Bank to finance 150,000 tonnes of urea imports – a critical requirement as supplies have dried up during the current agricultural season.

“Farmers don’t have to worry about not having inputs for the next season,” cabinet spokesman Bandula Gunawardena told reporters, estimating that 150,000 tons of urea would be needed for the next season. cultivation cycle.

While food inflation of 57% is partly due to rising world commodity prices, a depreciated currency and low domestic production, it is estimated that yields from the next harvest will be halved by the lack of fertilizer.

The United Nations is set to launch a global public appeal for Sri Lanka on Wednesday and has pledged $48 million for food, agriculture and health, Wickremesinghe said.

Sri Lanka was also renegotiating with China the terms of a yuan-denominated swap worth $1.5 billion agreed last year.

The original terms provided that the swap could only be used if Sri Lanka maintained reserves equivalent to three months of imports.

But with reserves now well below that level, Sri Lanka must ask China to reconsider the requirement and allow the swap, Wickremesinghe said.

Wickremesinghe, who is also finance minister, will unveil a draft budget next month which he says aims to cut government spending and seeks to increase annual social spending to $500 million from around $350 million.

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Reporting by Uditha Jayasinghe; Written by Devjyot Ghoshal; Editing by Clarence Fernandez

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