Sri Lankan economy has ‘completely collapsed’, says Prime Minister Wickremesinghe
Dove: Sri Lanka’s economy has ‘completely collapsed’ and it faces a much worse situation beyond just fuel, gas, electricity and food shortages, PM says Ranil Wickremesinghe warned on Wednesday, stressing the urgency of quickly reaching an agreement with the IMF to obtain an additional credit facility.
Sri Lanka is facing the worst economic crisis since its independence in 1948, which has caused severe shortages of essential items like food, medicine, cooking gas and fuel across the island nation.
Giving an update to parliament on the government’s mitigation measures so far, Wickremesinghe, also finance minister, said it was not easy to revive a country with a “completely collapsed” economy. , especially one that is dangerously low in foreign exchange reserves.
“If measures had at least been taken to slow the collapse of the economy at the beginning, we would not be facing this predicament today. But we missed this opportunity. We are now seeing signs of a possible drop to the bottom. However, we have to get out of this situation. Otherwise, we will not be able to find solutions to any other problem in the country,” he said.
“We are now facing a much more serious situation beyond just shortages of fuel, gas, electricity and food. Our economy has faced a complete collapse. This is the most serious question before us today. These problems can only be solved by reviving the Sri Lankan economy. To do this, we must first resolve the foreign exchange reserve crisis we are facing,” he said.
For Sri Lanka, the Prime Minister said: “The only safe option now is to hold talks with the International Monetary Fund. In fact, it’s our only option. We have to take this path. Our objective is to discuss with the IMF and reach an agreement to obtain an additional credit facility.
The country on the verge of bankruptcy, with an acute currency crisis that led to a default on external debt payments, announced in April that it was suspending the repayment of nearly $7 billion in external debt due for this year out of approximately $25 billion due through 2026. Total external debt stands at $51 billion.
The foreign currency crisis has reduced imports, creating severe shortages of food, fuel, electricity and other essentials like medicine, forcing people to queue to meet their basic needs.
Indian credit lines since January this year have provided a lifeline to Sri Lanka amid growing public dissent in the face of deteriorating economic conditions.
But Wickremesinghe said India would not be able to keep Sri Lanka afloat for too long.
“We have taken out loans for an amount of 4 billion dollars under the Indian line of credit. We have requested more assistance in the form of loans from our Indian counterparts. But even India will not be able to support us continuously in this way. Even their help has its limits. On the other hand, we too must have a plan to repay these loans. These are not charitable donations,” he said.
Wickremesinghe said that currently the Ceylon Petroleum Corporation has a debt of 700 million dollars. As a result, no country or organization in the world is willing to supply us with fuel. They are even reluctant to provide fuel for cash, he said.
He informed lawmakers that $70 million from the World Bank and $20 million from Sri Lankan government funds will be provided to import 100,000 tons of gas to solve the problem soon.
He said on Monday an IMF team arrived in Sri Lanka and talks with the group will continue for the next few days.
“We concluded the initial discussions and we exchanged ideas on various sectors such as public finance, finance, debt sustainability, banking sector stability and the social safety net,” he said. .
“We intend to conclude an agreement at the official level with the IMF by the end of July,” he said.
He said representatives from financial and legal consultancy firms Lazard and Clifford Chance are now in Sri Lanka to help with his debt restructuring efforts. The debt repayment restructuring framework is being worked out, he said.
He said next Monday, a team of US Treasury Department officials will also arrive in Sri Lanka.
He said Sri Lanka will host a credit aid conference which will be led by the major lending countries – India, Japan and China.
“There have been conflicts and disagreements between us in the recent past. We are working to resolve them and foster friendly relations again. Each country has different processes for granting loans. Through the Credit Aid Conference, we hope to achieve general consensus on lending processes,” he said.
“If we get the IMF stamp of approval, the world will trust us again. This will help us get help in the form of loans as well as low interest loans from other countries around the world,” the Prime Minister said.
The government is also in discussions with the World Bank, the Asian Development Bank, the United States, other friendly countries and heads of state to obtain short-term interim loans until the country receives the IMF support.
“We will be able to lay the foundation for ensuring economic stability after the successful completion of these tasks. But that will by no means be the end. In fact, this will be the start of our journey. A new journey to a stronger economy. We will then have to move forward with our plans to strengthen and create a new Sri Lankan economy,” he said.
Stressing that the government is also working to introduce political reforms, he called on the country’s two main opposition parties to immediately run for parliament and support the passage of the 21st Amendment to the Constitution and agree to establish the new system of parliamentary committees.
Lawmakers from the country’s two main opposition parties are boycotting parliament this week to protest Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for failing to deliver on his promises to revive the economy.
“As I have mentioned before, the situation we are facing today is by no means normal. I have said many times that Sri Lanka has not faced a crisis of this magnitude in its recent past. Once we have established a solid economic base, you can hand over power to any political party you wish in an election and elect 225 suitable representatives to parliament,” he said. .
He said that currently Sri Lanka needs $550 million to meet its monthly fuel needs. “However, in the face of the economic crisis, we are finding it difficult to obtain the necessary funds for this purpose. Accordingly, we will take steps to import as much fuel inventory as possible based on our dollar earnings. Addressing fuel shortages will take longer. Therefore, I ask you to economize when using fuel,” he said.
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