Sri Lanka seeks $3 billion in six months to avert crisis, says finance minister

Colombo: Sri Lanka will need about $3 billion in external assistance over the next six months to help restore the supply of essential items, including fuel and medicine, to manage a severe economic crisis, its finance minister told Reuters on Saturday.

“It’s a Herculean task,” Finance Minister Ali Sabry said in his first interview since taking office this week, referring to seeking $3 billion in bridging funding as the country prepares for negotiations. with the International Monetary Fund (IMF) this month.

“The first priority is to ensure that we return to the normal supply route in terms of fuel, gas, medicine and therefore electricity so that the popular uprising can be addressed,” Sabry said.
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The South Asian island nation will seek to restructure international sovereign bonds and seek a moratorium on payments, and is confident to negotiate with bondholders for an upcoming $1 billion payment in July.

“The whole effort is not to go for a hard default,” Sabry said. “We understand the consequences of a hard default.” JP Morgan analysts this week estimated that Sri Lanka’s gross debt service will stand at $7 billion this year, with a current account deficit of around $3 billion.

The country has $12.55 billion in international sovereign bonds outstanding, according to central bank data, and foreign exchange reserves of $1.93 billion at the end of March.

IMF support

Sabry said he would lead a delegation of Sri Lankan officials to Washington to begin talks with the IMF on April 18 and that financial and legal advisers would be selected within 21 days to help the government restructure its international debt.

“Once we go to them, the first thing is that there’s a sense of confidence across the international monetary community that we mean business,” he said. “We are transparent, we are ready to engage.” On Friday, a new central bank governor raised interest rates by 700 basis points in a bid to rein in soaring inflation and stabilize the economy.

Sri Lankan authorities will also contact rating agencies, Sabry said, as the country seeks to regain access to international financial markets after being stuck due to multiple rating downgrades since 2020.

Tax hike

Sabry said the government would raise taxes and fuel prices within six months and seek to reform loss-making state enterprises, with the aim of restoring public finances.

These measures were among the main recommendations of an IMF study on the Sri Lankan economy published in early March.

“These are very unpopular measures, but these are things we need to do to get the country out of it,” Sabry said.

India Line of Credit

Sri Lanka will seek another $500 million line of credit from India for fuel, which would be enough for about five weeks’ needs, Sabry said.

The government would also seek support from the Asian Development Bank, the World Bank and bilateral partners, including China, the United States, Britain and Middle Eastern countries.

“We know where we are, and the only thing to do is fight back,” Sabry said. Discussions are underway with China over a $1.5 billion line of credit, a syndicated loan of up to $1 billion and a request from the Sri Lankan president in January to restructure some of the debt.

“Hopefully we can get some relief and that would help keep the Sri Lankan community and the country afloat until bigger infusions arrive,” Sabry said.

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