Colombo, Sri Lanka (AP) – Sri Lanka’s prime minister said on Tuesday that Sri Lanka’s negotiations with the International Monetary Fund are more complex and difficult than in the past because it is a bankrupt country.
Prime Minister Ranil Wickremesinghe told lawmakers that recent discussions with the visiting IMF mission were productive but not as direct as in the past.
Our country has held talks with the IMF on many occasions before. But the situation this time is different from all those previous occasions. In the past, we had discussions as a developing country.
But the situation is different now. We are now participating in the negotiations as a bankrupt country. Explaining a roadmap for recovery from the worst economic crisis in Sri Lanka in memory, he said,.
The crisis has led to severe shortages of necessities, food, fuel, cooking gas and medicine, forcing people to stay in long queues to buy limited supplies. The government closed schools and required employees not working in essential services to work from home.
Wickremesinghe said earlier that a preliminary agreement had been submitted to the IMF board for approval. But due to the bankruptcy of our country, we have to submit a plan on the sustainability of our debts to them separately. Only when they are satisfied with that plan can we reach an agreement at the staff level. “This is not a straight forward process,” Wickremesinghe said.
He said Sri Lanka’s financial legal advisors are working on a debt sustainability report to be submitted in August.
Wickremesinghe said discussions are underway with India, Japan and China to form an aid consortium once a staff-level agreement is reached with the IMF.
Sri Lanka has suspended the repayment of about $7 billion in foreign debt due this year due to record levels of foreign exchange. The country’s total external debt is $51 billion, of which $28 billion must be repaid by 2027, with an average repayment of about $5 billion annually.
Frustrated people have been protesting in the streets for months, often bickering among themselves and with the police at gas stations.
Wickremesinghe said the central bank expects an economic contraction of 4% to 5% this year. The International Monetary Fund estimates that Sri Lanka’s economy will shrink by 6% to 7%.
The pandemic has devastated Sri Lanka’s economy, exacerbating the chronic problems of economic mismanagement. Wickremesinghe said GDP fell to $76.2 billion in 2021, down from $94.4 billion in 2018 and would not recover to the level it was in 2018 until 2026. He said one of the government’s goals was to achieve 1% growth by the end of next year .