Sri Lanka’s debt-laden economy has “collapsed” after months of food, fuel and electricity shortages, its prime minister told lawmakers on Wednesday, highlighting the country’s plight as it seeks help from international creditors.
Prime Minister Ranil Wickremesinghe told Parliament that the South Asian country “is facing a much more serious situation than simple fuel, gas, electricity and food shortages. Our economy has completely collapsed.”
Although Sri Lanka’s crisis is considered the worst in recent memory, Wickremesinghe’s assertion that the economy has collapsed does not contain any concrete new developments. This appears to have been done to emphasize to his critics and opposition lawmakers that he has inherited a difficult task that cannot be solved quickly as the economy collapses under the weight of heavy debt, loss of tourism revenue and other effects of the pandemic, as well as rising commodity prices. .
MPs from the country’s two main opposition parties are boycotting parliament this week in protest against Wickremesinghe, who became prime minister and finance minister just over a month ago, for not delivering on his promises to change the economy.
Wickremesinghe said Sri Lanka could not even buy imported fuel for cash because of its oil corporation’s heavy debt.
“Ceylon Petroleum Corporation currently has a debt of $700 million,” he told lawmakers. “As a result, no country or organization in the world is willing to provide us with fuel. They don’t even want to provide fuel for cash.”
Wickremesinghe took office after days of violent protests over the country’s economic crisis, which forced his predecessor to step down. In a comment on Wednesday, he accused the previous government of not taking timely action on Sri Lanka’s dwindling foreign exchange reserves.
The foreign exchange crisis has reduced imports, resulting in severe shortages of food, fuel, electricity and other essentials such as medicine, forcing people to queue in long lines to get essentials.
“If at the beginning steps were at least taken to slow down the collapse of the economy, today we would not be faced with this difficult situation. But we missed this opportunity. Now we see signs of a possible fall to the very bottom. ,” he said.
So far, Sri Lanka has struggled to survive, largely thanks to $4 billion in credit lines from neighboring India. But Wickremesingh said that India would not be able to keep Sri Lanka afloat for long.
He also received pledges of $300-600 million from the World Bank to buy medicines and other essentials.
Sri Lanka has already announced that it is suspending the repayment of $7 billion of external debt owed this year, pending the outcome of negotiations with the International Monetary Fund on a bailout package. It has to pay an average of $5 billion a year until 2026.
Wickremesinghe said IMF assistance now seems the only option for the country. Agency officials visit Sri Lanka to discuss a rescue package. An agreement at the staff level is likely to be reached by the end of July.
“We completed initial discussions and exchanged views on various sectors such as public finance, finance, debt sustainability, banking sector stability and the social safety net,” Wickremesig said.
Representatives of the government’s debt-restructuring financial and legal advisors Lazard and Clifford Chance are also visiting the island, he said, and a team from the US Treasury will arrive next week.