Sri Lanka seeks immediate emergency funds as aid talks move to Washington DC

Dove: A Sri Lankan delegation will travel to Washington next week, seeking up to $4 billion from the International Monetary Fund and other lenders to help the island nation pay for food and fuel imports and limit payment defaults.

The team led by new finance minister Ali Sabry hopes to start talks with the lender of last resort on April 18 and get help as early as a week after talks.

“We need immediate emergency funding to get Sri Lanka back on track,” Sabry said in an interview with Bloomberg Television on Thursday, while estimating the funding need this year at between $3 billion and $4 billion. . “Our appeal to them is to release him as soon as possible.”

Sabry will be joined in the talks by central bank governor Nandalal Weerasinghe and treasury secretary Mahinda Siriwardana, who both worked at the IMF.

Yet political unrest in the country, with street protests by citizens calling for the ousting of President Gotabaya Rajapaksa, is only making it harder to convince the IMF to lend money. The $81 billion economy $8.6 billion of debt securities this year before suspending payments on foreign loans to preserve the cash needed to pay for essential imports of food and fuel.

“With all their expertise, we are looking to present ourselves with a decent case, which will preserve the Sri Lankan economy,” Sabry said, affirming his confidence in the team he will lead. Governor Weerasinghe replaced Ajith Nivard Cabraal, one of the strongest proponents of ending reliance on the IMF, while Secretary Siriwardana took over from Sajith Attygalle, also known for resist using of the multilateral lender.

Even with officials more willing to work with the IMF in place, it will be a daunting task for Sri Lanka to raise the kind of funds that Sabry said the country needs to weather a balance of payments crisis this year.

The last time the IMF provided assistance to Sri Lanka in 2016, the loan was capped at $1.5 billion and the program was prematurely terminated after disbursing $1.3 billion. This was when the economy was growing at around 5% and tourism was a similar percentage of gross domestic product.

With no revenue from tourism post-pandemic, Sri Lanka has recently turned to countries like China and India for support amid weak foreign exchange reserves. The nation is also in talks with the World Bank and the Asian Development Bank for support, Sabry said.

Sri Lanka’s High Commissioner to India, Milinda Moragoda, has met with Finance Minister Nirmala Sitharaman in New Delhi to seek further assistance in securing food and fuel imports for the island nation, according to a statement from the High Commission. . mentioned. New Delhi has already provided a $1 billion credit facility to purchase food, medicine and other essentials as well as $500 million for fuel imports since the crisis.

Citigroup Global Markets expects the IMF’s involvement to facilitate negotiations with bondholders, as Sri Lanka seeks to ask them to take a haircut on payments owed to them. The government can ask investors to accept a loss of 50% on interest payments and 20% on principal, analysts Donato Guarino and Johanna Chua wrote in a note to clients.

“If you’ve been part of our prosperity and made money from it, when we’re not doing well, you have to cut your hair,” Sabry said. “This is going to be a long, long discussion.”

The loan restructuring plan must be credible and reduce the amount of debt to a sustainable level, said Sanjeewa Fernando, strategist at CT CLSA Securities in Colombo. He also stressed the need for tax reforms with a formal timetable.

The authorities are also seeking to cut spending, including by freezing hiring in ministries.

“Given that we have entered into discussions with the IMF, strengthening our fiscal space is essential,” Siriwardana said on Tuesday, adding that the government would also look for ways to increase state revenue.

Ahead of the talks, Sri Lanka raised interest rates, devalued the local currency and imposed restrictions on non-essential imports. Prime Minister Mahinda Rajapaksa also called on citizens to be patient in the face of soaring prices and worsening food shortages to fuel medicine.

The IMF said it was “following political and economic developments very closely” and was “very concerned” about the hardships faced by people, especially the poor and vulnerable. Bloomberg

Read also : Sri Lanka wants India to play ‘guarantor’, urges partners to offer financial aid to Colombo

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