COLOMBO, Sri Lanka (AP) – Sri Lanka’s debt-laden economy has “collapsed” after months of shortages of food, fuel and electricity, the prime minister told lawmakers on Wednesday, in comments underlining the country’s plight as it seeks help from international lenders .
Prime Minister Ranil Wickremesinghe told parliament the South Asian country is “facing a much more serious situation than just shortages of fuel, gas, electricity and food. Our economy has completely collapsed.”
While the crisis in Sri Lanka is considered the worst in recent history, Wickremesinghe’s claim that the economy has collapsed did not mention any specific new developments. It seemed intended to emphasize to his critics and opposition lawmakers that he has inherited a difficult task that cannot be solved quickly as the economy collapses under the weight of heavy debt, lost tourist revenue and other effects of the pandemic, as well as rising costs for goods.
Lawmakers from the country’s two main opposition parties boycotted parliament this week in protest against Wickremesinghe. who became Prime Minister a little over a month ago? and is also finance minister, because he has not kept his promises to change the economy.
Wickremesinghe said Sri Lanka is unable to buy imported fuel, even for cash, because of the oil company’s high debts.
“Currently, the Ceylon Petroleum Corporation is in debt of $700 million,” he told lawmakers. “As a result, no country or organization in the world is willing to fuel us. They are even reluctant to provide fuel for cash.”
Wickremesinghe took office after days of violent protests over the country’s economic crisis forced his predecessor to resign. In his comments on Wednesday, he blamed the previous government for failing to intervene in time as Sri Lanka’s foreign reserves dwindled.
The currency crisis has hampered imports, causing severe shortages of food, fuel, electricity and other essentials such as medicines, forcing people to queue in long lines to meet their basic needs.
“If at the very least measures had been taken in the beginning to slow down the collapse of the economy, we would not be facing this difficult situation today. But we missed this opportunity. We are now seeing signs of a possible decline to the bottom,” he said.
So far, Sri Lanka has been muddling through, supported mainly by $4 billion in credit lines from neighboring India. But Wickremesinghe said India could not sustain Sri Lanka for long.
It has also received pledges of $300 million – $600 million from the World Bank buy medicines and other essential items.
Sri Lanka has already announced that it is $7 Billion Repayment Suspension in foreign debt maturing this year, pending the outcome of negotiations with the International Monetary Fund on a rescue package. It has to pay an average of $5 billion a year until 2026.
Wickremesinghe said help from the IMF now appears to be the only option. Agency officials visit Sri Lanka to discuss a rescue package. A staff-level agreement is likely to be reached by the end of July.
“We have completed initial discussions and exchanged ideas on various sectors such as public finance, finance, debt sustainability, banking sector stability and the social security network,” said Wickremesighe.
Representatives of the government’s financial and legal advisers on debt restructuring, Lazard and Clifford Chance, are also visiting the island, and a team from the US Treasury Department will arrive next week, he said.