IMF team in Sri Lanka for rescue talks amid deepening economic crisis
A team from the International Monetary Fund is in Sri Lanka for crucial rescue negotiations with the country in crisis which has hardly any foreign currency to import food, fuel and medicine.
The talks began on Monday as schools and government offices closed for two weeks and shifted to working online to save fast-draining fuel supplies.
“We reaffirm our commitment to support Sri Lanka at this difficult time, in line with IMF policies,” the lender said in a statement.
The nine-member team met Prime Minister Ranil Wickremesinghe and will be in the country for 10 days.
Economists say talks with the IMF are essential for the country as it faces virtual bankruptcy. Wickremesinghe told Parliament earlier this month that Sri Lanka needed at least $ 5 billion to respond to essential imports for the rest of the year. Previously, the government had suspended repayment of its foreign debt.
The economic situation has been exacerbated by a political crisis that has led to months of protests demanding the resignation of President Gotabaya Rajapaksa. The meltdown is blamed on mismanagement by the Rajapaksa family that held many crucial positions in the government, and the COVID-19 pandemic that ended crucial tourism earnings.
“For Sri Lanka, the IMF is the only game in town; there is no other alternative,” said Murtaza Jafferjee, president of the Advocata Institute, a research organization based in Colombo. “If the Talks are successful, it would give confidence to other investors that sri lanka is on the path to Economic Recovery and open the Door for Creditors Like the World Bank to Resume Lending.
While the government hopes to speed up the conclusion of a preliminary agreement with the IMF, finalizing a relief package could take months. Economists say that will depend on the country taking critical steps that will increase short-term hardship, such as raising interest rates and taxes to reduce the budget deficit and make the exchange rate flexible.
“I don’t expect a final agreement before the end of the year. Until then, we just have to whip,” says economist Jafferjee. “There is no option.”
The severe fuel shortage has brought economic activity to a virtual standstill – factories have had to scale back operations and winding lines outside petrol stations have seen people wait until 4pm for fuel. It has led to sporadic unrest – on Saturday troops fired into the air at a petrol station in the town of Visuvamadu to control crowds who clashed with police when fuel ran out, authorities say .
Armed police and troops have been deployed to protect fuel stations in Sri Lanka for months.
Power and Energy Minister Kanchana Wijisekera has warned that the existing stock of diesel and gasoline could soon run out. He said last week that the government had not received new fuel offers because suppliers had been deterred by pending payments worth around $725 million.
Amid the Crisis, Sri Lanka has also reached out to multiple country included several russian companies to purchase crude oil imports for the coming months, Wijisekera Said Last Week. Economists say that hope is to obtain Russian oil at a reduced price with credit conditions at a time when the country faces extreme difficulties.
While Western countries have imposed sanctions on Russia, Sri Lanka has remained neutral on the war in Ukraine, like some other South Asian countries.
Food shortages have prompted unusual initiatives. Last week the government asked officials to work a four-day week and take the day off to grow food in their backyards ‘as a solution to the food shortage that is expected to occur in the future’ , according to a government statement.
“The humanitarian situation is deteriorating,” says Jehan Perera, director of the non-governmental advocacy group, the National Peace Council in Colombo. “Food is available at a very high price, but many people don’t have money because they have no income, so they can’t buy it. So yeah, those are bad times.