January 31, 2023

Sri Lanka’s new president said obtaining an IMF loan would take until at least September after weeks of protests and political unrest over the economic crisis in the country.

Ranil Wickremesinghe, who became president this month after protesters forced his predecessor Gotabaya Rajapaksa to flee the country, said in a speech the negotiations would take longer than expected.

“I was aiming for July to reach an agreement and get the approval of the IMF board in the first week of August,” said Wickremesinghe, who previously served as prime minister.

“Since the incidents [earlier in July] all of these will now be postponed. It lasts until the end of August. We won’t be able to get approval until September.”

Wickremesinghe had previously said he wanted a deal as early as June. Sri Lanka has been hit by weeks of unrest amid widespread anger at the government, whose economic mismanagement protesters blame for pushing the country into its worst economic crisis in decades.

Sri Lanka defaulted on its foreign debt of more than $50 billion in May, the first Asia-Pacific country to do so in more than two decades after effectively running out of foreign reserves. The lack of foreign exchange for imports has led to crippling shortages of everything from fuel to medicines, leading to a collapse in living standards.

The country began negotiations with the IMF this year for a $3 billion bailout package, and is also in talks with other lenders, including the Asian Development Bank and countries like India and China for more financial aid.

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Analysts said the government would likely need to implement a package of painful economic reforms before finalizing an IMF deal.

Nandalal Weerasinghe, the governor of Sri Lanka’s central bank, told the FT that the government had to implement “several tax measures and various measures to curb spending and restructure state-owned enterprises”.

Fitch Ratings said that while the government had a large parliamentary majority to implement such reforms, they risked sparking more public opposition.

“In the absence of an IMF deal, we expect Sri Lanka to face a very tense external position in the near term,” Fitch said in a note. “The country has little foreign exchange to pay, even for essential imports such as fuel, food and medicine.”

Sri Lanka has become an extreme example of the pressures many developing countries face following the global rise in fuel and food prices following the Russian invasion of Ukraine, which exacerbated the financial pressures caused by the Covid-19 pandemic.

Several of Sri Lanka’s neighbors are also feeling the pressure. Pakistan reached a preliminary agreement this month for a disbursement of more than $1 billion from the IMF to replenish its own foreign exchange reserves. And Bangladesh this week approached the IMF to begin negotiations over a billion-dollar loan.

Economists said Sri Lanka’s misery was also their own, the result of economic mismanagement and spending on infrastructure projects for white elephants under the Rajapaksa family, who ruled the country for the better part of two decades.

Many protesters also want Wickremesinghe to stop. Shortly after she took office, police with batons cleared a large protest site in Colombo in a show of force under the new president.

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