- Seeks another $500M from India for fuel
- The government’s top priority is to ensure the supply of essential goods
- Increase taxes and fuel prices within six months
COLOMBO, April 9 – Sri Lanka will need about $3 billion in external aid over the next six months to restore supplies of essentials such as fuel and medicines, its finance minister told Reuters on Saturday.
The island nation of 22 million has been plagued by ongoing power cuts and shortages that have drawn protesters onto the streets and put increasing pressure on President Gotabaya Rajapaksa.
“It’s a Herculean task,” Finance Minister Ali Sabry said in his first interview since taking office this week, referring to the search for $3 billion in bridge financing while the country enters negotiations with the International Monetary Fund (IMF). ) prepared this month.
The country will look to restructure international government 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 isn’t going for a hard default,” Sabry said. “We understand the consequences of a hard failure.”
Analysts at JP Morgan this week estimated Sri Lanka’s gross debt service this year would be $7 billion with a current account deficit of around $3 billion.
The country has $12.55 billion in outstanding international government bonds, central bank data showed, and foreign exchange reserves of $1.93 billion at the end of March.
“The first priority is to make sure we get back to the normal supply channel in terms of fuel, gas, drugs… and therefore electricity, so that the popular uprising can be addressed,” Sabry said.
“TRUST”
Anti-government protests have raged across the island for days, with at least one turning violent in the commercial capital of Colombo, threatening the country’s lucrative tourism industry.
“We respect your right to protest, but no violence because it’s counterproductive,” Sabry said.
“Our tourism, which came back beautifully in February with 140,000 tourists coming in, has been badly hit since the demonstrations.”
Thousands of protesters rallied near the President’s seafront office in Colombo on Sunday, making it one of the biggest public outrage shows in recent days.
A large contingent of police and at least one water cannon stood near where several protesters held the country’s national flag.
The protesters included dozens of Muslims sitting in the middle of a blocked street to break their Ramadan fast and others chanting “Gota (Gotabaya) go home” urging the president to step down.
Ali Sabry, newly appointed Finance Minister, speaks during an interview with Reuters amid the country’s economic crisis in Colombo, Sri Lanka April 9, 2022. REUTERS/Dinuka Liyanawatte
Continue reading
Sabry said he would lead a delegation of Sri Lankan officials to Washington to begin 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, the first thing that gives a sense of confidence across the international monetary community is that we mean business,” he said. “We are transparent, we are ready to get involved.”
On Friday, a new central bank governor raised interest rates by an unprecedented 700 basis points in a bid to tame skyrocketing inflation and stabilize the economy. Continue reading
Sri Lankan authorities will also approach credit rating agencies, Sabry said, as the country seeks to regain access to international financial markets after being locked out due to multiple rating downgrades since 2020.
Sabry said the government will raise taxes and fuel prices within six months and seek to reform loss-making state-owned companies.
These measures were among the key recommendations in an IMF review of Sri Lanka’s economy released in early March.
“These are very unpopular measures, but these are things we need to do for the country to get out of this,” Sabry said. “The choice is do you do this or go down the drain permanently?”
‘ALL FRIEND’
Sri Lanka will apply for another $500 million credit line from India for fuel, which would last for about five weeks, Sabry said.
The government would also seek support from the Asian Development Bank, the World Bank and bilateral partners such as China, the United States, Britain and Middle Eastern countries.
“We know where we are and the only thing we can do is fight back,” Sabry said, looking relaxed in a blue t-shirt and jeans. “We have no choice.”
Talks are ongoing with China for a $1.5 billion credit line, up to $1 billion in a syndicated loan and a Sri Lankan President’s proposal in January to restructure some of the debt.
“Hopefully we can get some relief that would help…until larger IVs arrive,” Sabry said.
Beijing and New Delhi have long struggled for influence on the island off India’s southern tip as the country draws ever closer to China under the powerful Rajapaksa family.
But in recent weeks, as the economic crisis deepened, Sri Lanka has relied heavily on Indian aid.
“We are a neutral country. We are friends of all,” said Sabry, a lawyer who previously served as Sri Lanka’s Minister of Justice. “So we think goodwill will come in handy at this point.”
Reporting by Devjyot Ghoshal and Uditha Jayasinghe in Colombo; Adaptation by William Mallard and Jason Neely