Sri Lanka is battling its worst financial crisis since independence in 1948, as decades of economic mismanagement and recent policy errors coupled with a hit from COVID-19 to tourism and remittances, shrivelling foreign reserves to record lows.
An International Monetary Fund (IMF) team arrives in Sri Lanka on Monday for talks on a bailout programme, but time is short for a country just days from running out of fuel and likely months from getting any relief money.
Sri Lanka is battling its worst financial crisis since independence in 1948, as decades of economic mismanagement and recent policy errors coupled with a hit from COVID-19 to tourism and remittances, shriveling foreign reserves to record lows.
The island nation of 22 million people suspended payment on $12 billion debt in April. The United Nations has warned soaring inflation, a plunging currency and chronic shortages of fuel, food and medicine could spiral into a humanitarian crisis.
The IMF team, visiting Colombo through June 30, will continue recent talks on what would be Sri Lanka’s 17th rescue programme, the IMF said on Sunday.
“We reaffirm our commitment to support Sri Lanka at this difficult time, in line with the IMF’s policies,” the global lender said in a statement.
Colombo hopes the IMF visit, overlapping with debt restructuring talks, will yield a quick staff-level agreement and a fast track for IMF board disbursements. But that typically takes months, while Sri Lanka risks more shortages and political unrest.
“Even if a staff-level agreement is reached, final programme approval will be contingent upon assurances that official creditors, including China, are willing to provide adequate debt relief,” said Patrick Curran, senior economist at U.S. investment research firm Tellimer.
Bondholders expect the IMF visit to give clarity on how much debt Sri Lanka can repay and what haircuts investors may have to take.
“This IMF visit is very important – the country will need every help and support it can get,” said Lutz Roehmeyer, portfolio manager at Berlin-based bondholder Capitulum Asset Management.
“For many international bondholders, this will be a key requirement to ensure they come to the table and talk about a debt restructuring in the first place.
Prime Minister Ranil Wickremesinghe said this month an IMF programme is crucial to access bridge financing from sources such as the World Bank and Asian Development Bank.
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