© Reuters. Protesters chant slogans against Sri Lankan President Gotabaya Rajapaksa near the Presidential Office, amid the country’s economic crisis in Colombo, Sri Lanka, April 9, 2022. REUTERS / Dinuka Liyanawatte
By Devjyot Ghoshal and Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka will need about $3 billion in external assistance over the next six months to help restore supplies of essential goods including fuel and medicine, Finance Minister Ali Sabry said. with Reuters on Saturday.
The island nation of 22 million has been affected by power cuts and power shortages that have sent protesters to the streets and put President Gotabaya Rajapaksa under growing pressure.
“It’s been a Hercule mission to find $3 billion in bridge funding as the country is ready to negotiate with the Money Fund,” Sabry said in his first interview since taking office this week. International Monetary Fund (IMF) this month.
It will consider restructuring international sovereign bonds and seek a moratorium on payments, and is confident it can negotiate with bondholders for a $1 billion payment due in July.
“The whole effort is not about defaulting,” says Sabry. “We understand the consequences of a difficult default.”
JP Morgan analysts this week estimated that Sri Lanka’s total debt repayments will top $7 billion this year, with a current account deficit of around $3 billion.
The country had $12.6 billion in international bonds outstanding and foreign exchange reserves of $1.9 billion at the end of March, according to central bank data.
“The first priority is that we get back to the normal supply of fuel, gas, medicine… and from there get electricity so the people’s uprising can be resolved,” Sabry said.
The IMF said on Saturday that it had begun engaging at a technical level with Sri Lanka’s finance ministry and central bank officials for a lending program, and was “very concerned” about the unfolding crisis. take place.
“We are committed to supporting Sri Lanka consistent with our policies and will engage in discussions on a possible agenda with senior policymakers in the coming days and weeks,” he said. Masahiro Nozaki, the head of the IMF’s mission to Sri Lanka, told Reuters in a statement.
‘SENSE OF CONFIDENCE’
Anti-government protests have raged across the island for days, with at least one turning violent in the commercial capital Colombo, threatening the country’s lucrative tourism industry.
Thousands of protesters gathered near the president’s beachfront office in Colombo on Saturday, making it one of the biggest public outrage in recent days.
The protesters included dozens of Muslims sitting in the middle of a blocked road to break their fasting month of Ramadan and others urging the president to step down with shouts of “Gota (Gotabaya) go home”.
Sabry said he will lead a delegation of Sri Lankan officials to Washington to begin negotiations with the IMF on April 18 and that financial and legal advisers will be selected within 21 days to help the government to restructure international debt.
“Once we went to them, the first thing was that the entire international monetary community had a sense of confidence that we were serious,” he said. “We’re transparent, we’re open to participation.”
On Friday, a new central bank governor raised interest rates by an unprecedented 700 basis points in a bid to rein in soaring inflation and stabilize the economy.
The Sri Lankan authorities will also contact rating agencies as the country seeks to regain access to international financial markets after being locked down due to multiple rating downgrades since 2020, Sabry said.
He said the government would raise taxes and fuel prices within six months and seek to reform loss-making state-owned enterprises.
The measures were among the key recommendations in an IMF review of the Sri Lankan economy published in early March.
“These are very unpopular measures, but here are the things we need to do to get the country out of this situation,” Sabry said.
‘FRIEND OF ALL’
He said Sri Lanka would seek another $500 million line of credit from India for fuel, enough for about five weeks.
The government will also seek support from the Asian Development Bank, the World Bank and bilateral partners including China, the United States, the United Kingdom and countries in the Middle East.
“We knew where we were and the only thing was to fight back,” Sabry said. “We have no choice.”
Discussions are ongoing with China over a $1.5 billion credit line, up to $1 billion in syndicated loans and a request from the President of Sri Lanka in January to restructure some of the debt.
“Hopefully we’ll be able to get some relief that will help…until larger types of infusions come in,” he said.
Beijing and New Delhi have long jostled for influence over India’s southernmost island, with the country moving closer to China under the powerful Rajapaksa family.
But in recent weeks, as the economic crisis deepens, Sri Lanka has come to rely heavily on support from India.
“We are a neutral country,” said Sabry. “We are a friend of all.”