Sri Lankan economy has ‘completely collapsed’, leader says

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Reported by: Sky News

The country of 22 million people is struggling with its worst economic crisis in seven decades.

Sri Lanka’s Prime Minister Ranil Wickremesinghe has said the country’s economy has “completely collapsed”, leaving it unable to pay for essentials such as oil imports.

It follows months of shortages of food, fuel, and electricity, and the realisation that even the credit lines from neighbouring India that have sustained the country so far will not be enough.


Mr Wickremesinghe told Sri Lanka’s parliament: “We are now facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food.

“Our economy has completely collapsed – that is the most serious issue before us today.”

Mr Wickremesinghe said that the state-owned Ceylon Petroleum Corporation is $700m (£572m) in debt, adding: “As a result, no country or organisation in the world is willing to provide fuel to us.

“They are even reluctant to provide fuel for cash.”

Sri Lanka has been struggling under the weight of its debt, combined with the impacts of the coronavirus pandemic, including a loss of tourism revenue and the rising cost of commodities.

In April, it suspended payment on the equivalent of £9.8bn in foreign debt.

Mr Wickremesinghe said that efforts to turn the situation around had failed, adding: “If steps had at least been taken to slow down the collapse of the economy at the beginning, we would not be facing this difficult situation today.

“But we lost out on this opportunity.

“We are now seeing signs of a possible fall to rock bottom.”

Previous prime minister Mahinda Rajapaksa resigned in May after months of protests and clashes between government supporters and those demanding a change in leadership.

This brought veteran Mr Wickremesinghe to the role for a sixth time, in a move that opposition politicians said was aimed at protecting President Gotabaya Rajapaksa and his family from protesters’ anger.

What comes next?

A team from the International Monetary Fund (IMF) arrived in Colombo earlier this week and talks with them have made progress, Mr Wickremesinghe said on Wednesday, adding that an agreement was likely by the end of this month.

“We have discussed multiple points including fiscal policy, debt restructuring and direct cash transfers,” he said.

“Parallel to this, we have also started talks on a debt restructuring framework, which we hope will be completed in July.”

Once a deal is reached with the IMF, Mr Wickremesinghe said that his plan is to focus on increasing the country’s exports and stabilising the economy.

Mr Wickremesinghe said he would also ask India, China and Japan for more help ahead of an interim budget in August.

He said: “We need the support of India, Japan and China who have been historic allies.

“We plan to convene a donor conference with the involvement of these countries to find solutions for Sri Lanka’s crisis.

“We will also seek help from the US,” he said.

Delegates from India will arrive in Sri Lanka on Thursday to talk about additional support their country could offer, and a team from the US is expected next week.

 

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