Sri Lanka to approach IMF for up to $4bn loan amid worsening economic crisis

Talks are scheduled to begin in Washington on April 18 and Finance Minister Ali Sabry expects emergency relief funds a week later

People wait to buy petrol at a gas station amid a fuel shortage in Colombo. Sri Lanka faces its worst economic crisis amid dwindling foreign reserves and severe food, fuel and medicine shortages. EPA

Sri Lanka needs between $3 billion and $4bn this year to pull itself out of an unprecedented economic crisis and plans to start talks with the International Monetary Fund for help, says Finance Minister Ali Sabry.

The country is looking at making a “decent case” before the IMF to help preserve the economy, Mr Sabry said. Talks are scheduled to begin in Washington on April 18 and he expects emergency relief funds a week later, if things go well.

“Our appeal to them is to release it as soon as possible,” Mr Sabry said, adding that President Gotabaya Rajapaksa’s government still enjoys a majority in parliament and hence the rightful authority to engage with the lender.

He indicated some funds the nation is seeking will come from other lenders and governments besides the IMF, but didn’t provide a breakdown.

Mr Sabry, along with newly appointed central bank governor Nandalal Weerasinghe, is a key member of Mr Rajapaksa’s team for bailout talks with the IMF. The funds are crucial to the success of a debt restructuring process initiated by the island nation this week after suspending some outstanding loan and interest payments.

Mr Sabry also sought to reassure investors of the nation’s intent to repay loans.

“What we have very categorically stated, across the board, is that we will honour our debt,” he said. “The commitment is there, the desire is there, but we don’t immediately have the funds to disburse.”

The IMF’s involvement should help negotiations with bond holders, Citigroup Global Markets analysts Donato Guarino and Johanna Chua wrote in a note to clients. They see Sri Lanka asking investors to take a haircut of 50 per cent on interest payments, and 20 per cent on the principal, with an exit yield of 11 per cent.

Sri Lanka is looking at bridge financing options and is confident it can secure aid from countries including China and India, Mr Sabry said. That effort would be accompanied by fiscal reforms to curtail expenditure and boost revenues, he said.

Citizens exasperated by double-digit inflation amid a shortage of everything from fuel to food and power cuts for as long as 13 hours have taken to the streets, seeking President Rajapaksa’s ouster, as well as that of his brother, Prime Minister Mahinda Rajapaksa.

The president used a customary greeting to the nation ahead of the local new year festival being observed on Thursday to appeal for “unity and better understanding” as protests in front of his secretariat at the central business district entered the sixth day.

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  Demonstrators in Sri Lanka gather outside the Presidential Secretariat in Colombo as the country faces shortages in food, fuel and medicines after defaulting on its $51 billion debt. EPA

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  Demonstrators camp in an area nicknamed the Gota-Go Village, close to the Presidential Secretariat in Colombo, Sri Lanka. Reuters

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  Residents of Gota-Go Village in Colombo use their phones to organise their protest against President Gotabaya Rajapaksa's management of the economy. Reuters

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  A demonstrator at Gota-Go Village in Colombo rests in one of the protest camp's many tents. Reuters

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  Water bottles are shared among protesters inside Gota-Go Village in Colombo, Sri Lanka. Reuters

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  Gota-Go Village in Colombo is a focus of opposition to Sri Lanka's President Gotabaya Rajapaksa's leadership. Reuters

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  The demonstrators who gather at Gota-Go Village near the Presidential Secretariat in Colombo, Sri Lanka, fear the country's medical service is near collapse. Reuters

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  Demonstrators distribute essentials such as water at Gota-Go Village in Colombo, Sri Lanka. Reuters

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  Protesters in Colombo after President Gotabaya Rajapaksa lost his parliamentary majority. EPA

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  Power cuts and fuel shortages across Sri Lanka bring protesters to the doorstep of President Gotabaya Rajapaksa in Colombo. AFP

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  Protesters in Sri Lanka have made the centre of Colombo, the capital, the focus of their efforts to unseat President Gotabaya Rajapaksa. AFP

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  People shout slogans during the protests. Reuters

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  A Buddhist monk prepares a placard at a demonstration against the economic crisis. AFP

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  Religious and secular groups unite in protest. AFP