Sri Lanka’s prime minister said on Thursday that he would quickly prepare an economic reform program and seek the approval of the International Monetary Fund because global inflation and the financial impact of Russia’s invasion of Ukraine on other countries could limit their ability to help the island nation.
Prime Minister Ranil Wickremesinghe said officials had reached agreement on basic reform concepts with the IMF and that he expected to prepare the economic reform program within two weeks. Once finalized, an IMF delegation will visit Sri Lanka to evaluate the program.
I paid special attention to it due to the current global situation, the war in Ukraine and global inflation. From what we can see, a number of countries may face economic problems like ours, Wickremesinghe said.
He added: “At the moment the United States and Europe are spending a lot on war and it is possible that the aid given to us will be reduced.”
Sri Lanka is on the brink of bankruptcy with a severe currency crisis that has led to a default on external debt payments. The country announced last month that it was suspending repayment of almost $7 billion in external debt due this year out of about $25 billion due until 2026. Sri Lanka’s total external debt stands at $51 billion.
The IMF said in a statement on Thursday that a team concluded initial talks on Sri Lanka’s reform plan remotely on Tuesday.
The team has made good progress in assessing the economic situation and identifying policy priorities to take moving forward, according to the statement.
The statement added that the discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring the credibility of monetary policy and exchange rate regimes; preserve the stability of the financial sector; and structural reforms to boost economic growth and strengthen governance.
We hope that these discussions will help the authorities formulate their reform program, the IMF said.
Sri Lanka’s former finance minister Ali Sabry says badly-timed tax cuts lead to reduced government revenues, reducing the country’s ability to borrow and freeing up existing reserves to keep the US dollar at a high. fixed rate against the local currency and that these factors were triggering the foreign exchange crisis. Moreover, the COVID-19 pandemic has almost severely reduced revenue from tourism, one of the country’s economic lifelines.
The economic crisis has led to a reduction in imports of goods and industrial raw materials, leading to a severe shortage of essential items like food, medicine, cooking gas and other fuels, toilet paper and even matches.
For months, Sri Lankans have been forced to queue for hours outside shops to buy fuel and cooking gas.
Protesters have occupied the entrance to President Gotabaya Rajapaksa’s office for nearly 50 days, demanding his resignation because they blame him and his powerful and politically connected family for economic crises.
Protests have nearly dismantled the powerful Rajapaksa political dynasty after the president’s brother resigned as prime minister amid nationwide violence earlier this month when his supporters attacked peaceful protesters. Two of the president’s other siblings and nephews have resigned from their cabinet posts.
Wickremesinghe promised to propose constitutional changes to reduce presidential powers, strengthen parliament and resolve Sri Lanka’s economic woes.