COLOMBO: Sri Lanka will need about $3 billion in external assistance in the next six months to help restore supplies of essential items including fuel and medicine, its finance minister told Reuters on Saturday.

The island nation of 22 million people has been hit by prolonged power cuts and shortages which have drawn protesters out on to the streets and put President Gotabaya Rajapaksa under mounting pressure.

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

The country will look to restructure international sovereign bonds and seek a moratorium on payments, and is confident it can negotiate with bondholders over a $1 billion payment due in July.

“The entire effort is not to go for a hard default,” Sabry said. “We understand the consequences of a hard default.”

J.P. Morgan analysts estimated this week that Sri Lanka’s gross debt servicing would amount to $7 billion this year, with a current account deficit of around $3 billion.

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

“The first priority is to see that we get back to the normal supply channel in terms of fuel, gas, drugs... and thereby electricity so that the people’s uprising can be addressed,” Sabry said.

Anti-government protests have raged across the island for days, with at least one turning violent in the commercial capital of Colombo, in a threat to the country’s lucrative tourism industry.

“We respect your right to protest, but no violence, because it is counterproductive,” Sabry said.

“Our tourism, which was beautifully coming back in February with 140,000 tourists coming in, has been severely affected ever since the demonstrations.”

Talks with IMF

Sabry said he will lead a delegation of Sri Lankan officials to Washington to start 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, first thing is there is a sense of confidence in the entire international monetary community that we are serious,” he said. “We are transparent, we are willing to engage.”

On Friday, a new central bank governor raised interest rates by an unprecedented 700 basis points in a bid to tame rocketing inflation and stabilise the economy.

Sri Lankan authorities will also reach out to rating agencies, Sabry said, as the country looks to regain access to international financial markets after being locked out due to multiple ratings downgrades since 2020.

Sabry said the government will raise taxes and fuel prices within six months and seek to reform loss-making state-owned enterprises.

These measures were among key recommendations in an IMF review of Sri Lanka’s economy released in early March.

“These are very unpopular measures, but these are things we need to do for the country to come out of this,” Sabry said. “The choice is do you do that or do you go down the drain permanently?”—Reuters

Published in Dawn, April 10th, 2022