Sri Lanka seeking $3 billion to stave off crisis

Amount will help restore supplies of essential items including fuel, medicines

COLOMBO:

Sri Lanka will need about $3 billion in external assistance within the next six months to help restore supplies of essential items, including fuel and medicines, to manage a severe economic crisis, its finance minister told Reuters on Saturday.

The island nation of 22 million people has been hit by prolonged power cuts, with drugs, fuel and other items running short, bringing angry protesters out on the streets and putting President Gotabaya Rajapaksa under mounting pressure.

“It is a herculean task,” Finance Minister Ali Sabry said in his first interview since taking office this week, referring to finding $3 billion in bridge financing as the country readied for negotiations with the International Monetary Fund (IMF) this month.

The South Asian island nation will look to restructure international sovereign bonds and seek a moratorium on payments, and is confident of negotiating with bondholders for an upcoming $1 billion payment in July.

“The entire effort is not to go for a hard default,” Sabry said. “We understand the consequences of a hard default.”

JP Morgan analysts estimated this week that Sri Lanka’s gross debt servicing would amount to $7 billion this year, with the current account deficit coming in around $3 billion.

The country has $12.55 billion in outstanding international sovereign bonds, according to central bank data, and foreign reserves of $1.93 billion at the end of March.

“The first priority is to see that we get back to the normal supply channel in terms of fuel, gas, drugs... and thereby electricity so that the people’s uprising can be addressed,” Sabry said.

Sense of confidence

Anti-government protests have raged across the island for days, with at least one turning violent in the country’s commercial capital of Colombo, which have hurt the lucrative tourism industry that was ravaged by the Covid-19 pandemic.

“We respect your right to protest, but no violence, because it is counterproductive,” Sabry said.

“Our tourism, which was beautifully coming back in February with 140,000 tourists coming in, has been severely affected ever since the demonstrations.”

Sabry said he will lead a delegation of Sri Lankan officials to Washington to start talks with the IMF on April 18 and that financial and legal advisers would be selected within 21 days to help the government restructure its international debt.

“Once we go to them, first thing is there is a sense of confidence in the entire international monetary community that we are serious,” he said.

“We are transparent, we are willing to engage.”

On Friday, a new central bank governor raised interest rates by an unprecedented 700 basis points in a bid to tame rocketing inflation and stabilise the economy.