Sri Lankan PM Wickremesinghe says negotiations with IMF difficult as country is bankrupt

Sri Lankan Prime Minister Ranil Wickremesinghe announced on July 5 that the island nation is negotiating with the International Monetary Fund (IMF) as a bankrupt country. Wickremesinghe stated that the fact that Sri Lanka is bankrupt makes negotiations with the IMF more complicated and challenging than in the past. The recent discussions with a visiting IMF mission, according to Prime Minister Ranil Wickremesinghe, were productive but less straightforward than in the past.

“Our country has held talks with the IMF on many occasions before. But this time the situation is different from all those previous occasions. In the past, we have held discussions as a developing country. But now the situation is different. We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation," Wickremesinghe said, outlining a recovery plan from Sri Lanka's worst economic crisis in recent memory, AP reported.

Due to the crisis, there are severe shortages of basic necessities like food, fuel, cooking gas, and medicines, which forces people to wait in long lines to purchase the scarce supplies. The government has closed schools and asked all employees except those in critical services to work from home.

Wickremesinghe had previously stated that a preliminary agreement has been submitted for approval to the IMF's board of directors. However, due to our country's bankruptcy, the government must submit a plan for debt sustainability to them separately, according to Wickremesinghe. 

"Only when they are satisfied with that plan can we reach an agreement at the staff level. This is not a straight-forward process," he added.

Sri Lanka crisis

Once a staff-level agreement with the IMF is reached, discussions are underway to form an aid consortium with India, China and Japan, according to Wickremesinghe. Due to record low levels of foreign exchange, Sri Lanka postponed paying back approximately $7 billion in foreign debts that were due this year. The nation owes $51 billion in total to foreign creditors, $28 billion of which must be repaid by 2027, or $5 billion annually on average.

Frustrated Sri Lankan citizens have been holding street protests for months and frequently clash with police at gas stations. Further, according to Wickremesinghe, the Central Bank expects the economy to contract by 4% to 5% this year. According to the IMF, Sri Lanka's economy will contract by 6 to 7%

The pandemic devastated Sri Lanka's economy, exacerbating long-standing issues of economic mismanagement. Its GDP fell to $76.2 billion in 2021, down from $94.4 billion in 2018, and will not recover to that level until 2026, according to Wickremesinghe. He stated that one government goal was to achieve minus 1% growth by the end of next year.

(With inputs from AP, Image: AP)