Sri Lanka's new president says IMF agreement pushed to September: report

The island nation is experiencing its worst economic crisis since independence and is hoping to receive a bailout package from the lender

Women wait near an empty fuel station hoping to buy kerosene oil for cooking in Colombo, Sri Lanka. AP
Powered by automated translation

Sri Lanka's president has said its bailout agreement with the International Monetary Fund has been pushed back to September because of unrest in the country, Associated Press reported.

Ranil Wickremesinghe, who was elected on July 20, said on Saturday that although the government had aimed to reach an agreement with the IMF by early August, it has now been pushed back by a month, the report said.

Sri Lanka is experiencing its worst economic crisis since independence in 1948 and needs at least $6 billion over the next few months to stay afloat because of a severe shortage of foreign currency required to buy essentials such as fuel and medicine.

The island nation of 22 million people fell into default for the first time after a 30-day grace period expired following missed interest payments on some of its sovereign bonds. In April, Sri Lanka said it was defaulting on $51bn of its external debts.

Late last month, the IMF said that Sri Lankan authorities had made “considerable progress” in formulating an economic reform programme to tackle the financial crisis, but refrained from committing any financial support to it.

As Sri Lanka's public debt was assessed as “unsustainable”, the IMF's executive board approval for the Extended Fund Facility facility would require “adequate financing assurances” from creditors that debt sustainability will be restored, the Washington-based lender said at the time.

The formation of the new government under Mr Wickremesinghe, after his predecessor Gotabaya Rajapaksa fled the country following protests, could help the country to carry out macroeconomic reforms, Fitch Ratings said on Thursday.

The appointment of the president, supported by a large majority, “gives some hope that it will have sufficient support to negotiate and carry out difficult reforms as part of efforts to restore macroeconomic stability and debt sustainability”, it said.

Any reform package agreed with the IMF is likely to include elements such as higher taxes, expenditure rationalisation and a commitment to a greater degree of exchange-rate flexibility.

“Such reforms could unlock funding support from the IMF, which we view as important for Sri Lanka’s emergence from default”, the rating agency said.

“In the absence of an IMF deal, we expect Sri Lanka to face a very strained external position in the near term,” it said.

Updated: August 01, 2022, 11:47 AM