Sri Lanka will present a debt restructuring programme to the IMF by August to secure a bailout package, Prime Minister Ranil Wickremesinghe told Parliament on Tuesday, underlining that negotiations with the global lender were more complex and difficult than in the past due to bankruptcy.
Sri Lanka is going through the worst economic crisis since its independence from Britain in 1948, and needs to obtain at least $4 billion to tide over the acute shortage in foreign exchange reserves. An International Monetary Fund (IMF) team visited Colombo on June 20 to continue discussions on an economic programme that could be supported by an IMF lending arrangement.
The IMF later said it has concluded “constructive and productive” discussions with Sri Lankan authorities, but warned that the crisis-ridden island nation needs to do more on debt restructuring and step up structural reforms to address corruption vulnerabilities before a bailout package is finalised.
"The first round of discussions with the IMF has been a success but the assistance depends on the debt restructuring programme which Sri Lanka has to come up with," Daily Mirror newspaper quoted Wickremesinghe as saying in Parliament.
Wickremesinghe said Sri Lanka will hand over a debt restructuring programme report to the IMF in August this year. “The expert companies which we have hired are in the process of preparing a debt restructuring programme and we will hand over the report on it to the IMF in August this year,” the Prime Minister said.
Wickremesinghe said the economic crisis will be resolved through meaningful reforms and stressed that the support of Parliament, including the Opposition, is of paramount importance. “A return to an open economy, devoid of state monopolies, is a must. Economic integration with the region mustn’t be feared, but pursued,” he said.
Wickremesinghe recalled that Sri Lanka held negotiations with the IMF on many occasions before, however at those times discussions were held as a developing country. "But this time the situation is different from all those previous occasions. We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation than in previous negotiations," he said.
"Once a staff-level agreement is reached, this will be submitted to the IMF Board of Directors for approval. But due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to them separately. Only when they are satisfied with that plan can we reach an agreement at the staff level. This is not a straightforward process. We have been able to end the round of discussion effectively despite these difficulties," Wickremesinghe said.
He said Sri Lanka's economy is currently shrinking and the government was trying to reverse it. "According to central bank statistics, our current economic growth rate is between negative four and negative five. According to IMF statistics, it is between negative six and negative seven. This is a serious situation," Wickremesinghe said.
"By 2025, our aim is to create a surplus in the primary budget. Our effort is to raise the economic growth rate to a stable level. Our expectation is to establish a stable economic base by 2026," he said. “It will take till 2026 to go back to the 2018 level. On this roadmap if we go in a determined way 2023 end our GDP growth will be minus one," he said.
He said the total debt burden of the government at the end of 2021 was ₹17.5 trillion and by March 2022 it has increased to ₹21.6 trillion.
"In addition, we are facing the effects of many problems that have worsened in the past two or three years. These are not problems that can be solved in two days. We are suffering from the effects of certain traditional ideas that have been followed in our country for many years. Therefore, as I mentioned earlier, we will have to face difficulties in 2023," he added.
The Prime Minister also presented the roadmap with proposed solutions to the existing economic problem. He said it was important to stabilise the rupee as soon as possible and strengthen the rupee without letting it fall. "We have implemented a plan to limit the printing of money in the future. In 2023, we will have to print money with restrictions on several occasions. But by the end of 2024, it is our intention to stop printing money completely."
He said the government aims to reduce the inflation rate to between 4 and 6 per cent by 2025. "Another top priority for us is to protect the banking and financial system. The pressure on these systems during an economic crisis does not need to be explained anew to this House. But due to this pressure, we will not allow the banking system to be pressured by poor policies. The government has given priority to strengthening the banking and financial system,” the Prime Minister said.
"We will have to restructure the Electricity Board, Ceylon Petroleum Corporation and Srilankan Airlines,” he said. Tuesday's Parliament session had to be suspended for ten minutes due to a tense situation which erupted in Parliament when Opposition MPs started shouting slogans against President Gotabaya Rajapaksa and displayed posters "Gota Go home" when Prime Minister Ranil Wickremesinghe was making a statement on the progress of the IMF talks.
President Rajapaksa, who was present in the House to attend sessions, left the chamber after the session was suspended. The country, with an acute foreign currency crisis that resulted in foreign debt default, had announced in April that it is suspending nearly $7 billion foreign debt repayment due for this year out of about $25 billion due through 2026. Sri Lanka's total foreign debt stands at $51 billion.
Since June 24, no fuel tankers with supplies have arrived in the island nation while the state-run fuel retailer Ceylon Petroleum Corporation says no new orders have been placed. Meanwhile, the government’s statistics office said on Tuesday that the economic growth in the first quarter of this year is projected to see a minus 1.6 per cent growth due to the economic crisis.
The Sri Lankan economy has virtually come to a grinding halt after it has run out of foreign exchange reserves to import fuel. Sri Lankans continue to languish in long fuel and cooking gas queues as the government is unable to find dollars to fund imports.
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