Sri Lanka admits bankruptcy, crisis to drag through 2023: Wickremesinghe

Aims to stop printing money as inflation nears 60%; to organise donor conference of friendly nations

Sri Lanka is bankrupt and the acute pain of its unprecedented economic crisis will linger until at least the end of next year, Prime Minister Ranil Wickremesinghe told parliament Tuesday. The island nation’s 22 million people have endured months of galloping inflation and lengthy power cuts after the government ran out of foreign currency to import vital goods. Wickremesinghe said the once-prosperous country will go into deep recession this year and acute shortages of food, fuel and medicine will continue.

This week, authorities extended a closure of schools, told public servants to work from home and limited fuel distribution to essential services as the country struggles to pay for new fuel shipments.

“We will have to face difficulties in 2023 as well,” the premier said. “This is the truth. This is the reality.”

He said Sri Lanka’s ongoing bailout talks with the International Monetary Fund (IMF) depended on finalising a debt restructuring plan with creditors by August. “We are now participating in the negotiations as a bankrupt country,” Wickremesinghe said.

“Due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to them separately. Only when (IMF) are satisfied with that plan can we reach an agreement.”

The IMF last week said more work was needed to set the nation’s finances right and repair its runaway fiscal deficit before a deal could be struck on a funding arrangement to address its balance of payments crisis. Sri Lanka is currently almost completely without petrol and the government has shut down non-essential public services in an effort to conserve fuel.

The United Nations estimates that about 80 percent of the public are skipping meals to cope with food shortages and record prices.

Stops money printing 

Sri Lanka, which has run out of dollars to purchase fuel and is printing rupees to pay local salaries, aims to stop injecting local currency to quash Asia’s fastest inflation.

The inflation rate is estimated to reach 60 per cent, Wickremesinghe told parliament Tuesday before a monetary policy review due Thursday. Talks for a bailout from the International Monetary Fund are complicated because the nation is bankrupt, he added. Wickrem­esinghe now sees Sri Lanka reaching a staff-level agreement with the IMF in August, delayed from the June deadline provided earlier.

Course correction
 

• The island nation will present a debt restructuring plan to the IMF in a bid to win approval for a four-year funding programme
• It aims to hold a donor conference with China, India and Japan to secure more loans
• Sri Lanka's central bank is expected to raise interest rates on Thursday