Sri Lanka’s new president has said securing an IMF loan will take at least until September after weeks of protests and political unrest sparked by the country’s economic crisis.
Ranil Wickremesinghe, who took office as president this month after protesters forced his predecessor Gotabaya Rajapaksa to flee the country, said in a speech that finalizing negotiations would take longer than expected.
“I was aiming for July to reach an agreement and get IMF board approval by the first week of August,” said Wickremesinghe, who was previously prime minister.
“Since the incident [earlier in July] all of this will now be delayed. It will take until the end of August. It is only in September that we will be able to obtain approval.
Wickremesinghe previously said he wanted a deal as soon as June. Sri Lanka has been hit by weeks of unrest amid widespread fury 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 depleting its foreign exchange reserves. The lack of foreign currency for imports has triggered crippling shortages of everything from fuel to medicine, causing living standards to plummet.
The country began talks with the IMF this year for a $3 billion bailout, and is also in talks with other lenders, including the Asian Development Bank and countries like India and China, for additional financial assistance.
Analysts have said the government is likely to pursue a painful economic reform package before finalizing an IMF deal.
Nandalal Weerasinghe, governor of Sri Lanka’s central bank, told the FT that the government needed to adopt “several fiscal measures, several measures to cut spending and restructure public enterprises”.
Fitch Ratings said that if the government had a large parliamentary majority to help push through such reforms, they risked triggering greater public opposition.
“In the absence of an agreement with the IMF, we expect Sri Lanka to face a very tight external position in the near term,” Fitch said in a note. “The country has little foreign currency to pay for even essential imports such as fuel, food and medicine.”
Sri Lanka has become an extreme example of the pressures faced by many developing countries after the global spike in fuel and food prices following Russia’s invasion of Ukraine, which exacerbated the financial pressure 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 supplement its own foreign currency reserves. And Bangladesh approached the IMF this week to start talks on a multi-billion dollar loan.
Economists said Sri Lanka’s woes were also self-inflicted, the result of economic mismanagement and spending on white elephant infrastructure projects under the Rajapaksa family, which ruled the country for a good part of two decades.
Many protesters also want Wickremesinghe to resign. Shortly after he took office, police armed with batons cleared a large protest site in Colombo in a show of force under the new president.