An International Monetary Fund (IMF) team arrives in Sri Lanka on Monday to negotiate a bailout program, but time is short for a country with fuel shortages and likely months of relief funds.
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Sri Lanka is grappling with its worst financial crisis since independence in 1948, with decades of economic mismanagement and recent policy errors, as well as a hit to tourism and remittances from COVID-19, to record foreign reserves reducing.
The island nation of 22 million people suspended debt payments worth $12 billion in April. The United Nations has warned that rising inflation, a falling currency and chronic shortages of fuel, food and medicine could turn into a humanitarian crisis.
The IMF said on Sunday that the IMF team is visiting Colombo till June 30 and will continue the recent talks on Sri Lanka’s 17th rescue programme.
“We reaffirm our commitment to support Sri Lanka in line with IMF policies during this difficult time,” the global lender said in a statement.
Colombo expects the IMF’s visit, overlapping with debt restructuring talks, an accelerated employee-level agreement and a faster track for IMF board disbursements. But this usually takes months, while Sri Lanka risks more shortages and political unrest.
“Even if an employee-level agreement is reached, approval of the final program will depend on assurances that official creditors, including China, provide adequate debt relief,” said Patrick Curran, senior economist at US investment research firm Telemer. ready to provide.”
“All considered, the restructuring is likely to be a lengthy process.”
But the crisis is already overwhelming for average Sri Lankans, such as autorickshaw driver Mohammad Rahman, 64, who recently stood in line for more than 16 hours for gasoline.
“They say petrol will come but nothing yet,” he told Reuters. “Things are very difficult. I can’t make any money, I can’t go home and I can’t sleep.”
Kilometer-long snaking lines have formed outside most fuel pumps since last week. Schools have been closed in urban areas and public employees have been asked to work from home for two weeks.
Bondholders hope the IMF visit will clarify how much debt Sri Lanka can repay and what investors may have to cut.
“This visit of the IMF is very important – the country will need all the help and support it needs,” said Lutz Rohmeier, portfolio manager at Berlin-based bondholder Capitalum Asset Management. “For many international bondholders, this will be a key requirement to ensure that they come to the table and talk about debt restructuring in the first place.”
Prime Minister Ranil Wickremesinghe said this month that the IMF program is important to access bridge financing from sources such as the World Bank and the Asian Development Bank.
Sri Lanka’s financial and legal advisors, representatives of Lazard and Clifford Chance, are in Colombo.
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