COLOMBO, Sri Lanka (AP) — Sri Lanka’s debt-laden economy has “collapsed” after months of food, fuel and electricity shortages, the prime minister told lawmakers Wednesday in comments that underscored the dire situation of the country while seeking help from international lenders.
Ranil Wickremesinghe told parliament that the South Asian nation faces “a much more serious situation” than shortages alone, warning of “a possible drop to the bottom”.
“Our economy has completely collapsed,” he said.
The crisis on the island of 22 million is considered the worst in recent memory, but Wickremesinghe did not cite any specific new developments. His comments seemed intended to emphasize to critics and opposition lawmakers that he has inherited a difficult task that cannot be solved quickly.
“He’s setting very, very low expectations,” said Anit Mukherjee, an economist and policy fellow at the Center for Global Development in Washington.
Wickremesinghe’s comments also sent a message to potential lenders: “A country of such strategic importance cannot be allowed to collapse,” Mukherjee said, noting that Sri Lanka is on one of the world’s busiest shipping lanes. .
Sri Lanka’s economy is sinking under the weight of heavy debts, loss of tourism revenue and other effects of the pandemic, as well as rising costs of basic goods. The result is a country hurtling toward bankruptcy, with hardly any money to import gasoline, milk, cooking gas, and toilet paper.
Lawmakers from both main opposition parties are boycotting Parliament this week to protest Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for failing to deliver on his promises to turn the economy around.
Wickremesinghe said Sri Lanka is unable to buy imported fuel due to its oil corporation’s heavy debt.
The Ceylon Petroleum Corporation is $700 million in debt, he told lawmakers. “As a result, no country or organization in the world is willing to provide us with fuel. They are even reluctant to provide fuel for cash.”
The crisis has begun to affect Sri Lanka’s middle class, which is estimated to represent between 15% and 20% of the country’s urban population. The middle class began to grow in the 1970s after the economy opened up to more trade and investment. It has grown steadily ever since.
Until recently, middle-class families generally enjoyed economic security. Now those who never had to think twice about fuel or food are struggling to manage three meals a day.
“They really have been shaken like never before in the last three decades,” said Bhavani Fonseka, a senior fellow at the Center for Policy Alternatives in Colombo, the Sri Lankan capital.
“If the middle class is struggling like this, imagine how hit the most vulnerable are,” Fonseka added.
The situation has derailed years of progress toward the relatively comfortable lifestyles that are aspired to in South Asia.
Government officials have been given every Friday off for three months to save fuel and grow their own fruit and vegetables. The food inflation rate is 57%, according to official data.
Wickremesinghe took office after days of violent protests over the country’s economic crisis forced his predecessor to resign. On Wednesday, he blamed the previous government for not acting in time when Sri Lanka’s foreign exchange reserves were reduced.
The currency crisis has crippled imports, creating dire shortages that also include medicines and forcing people to stand in long lines for basic necessities.
“If measures had at least been taken to stop the collapse of the economy at the beginning, we would not be facing this difficult situation today. But we missed this opportunity. Now we are seeing signs of a possible fall to the bottom.” ,” he said.
So far, Sri Lanka has been muffling along, supported mainly by $4bn in credit lines from neighboring India. But Wickremesinghe said India would not be able to keep Sri Lanka afloat for long.
It has also received pledges of $300 million to $600 million from the World Bank to buy medicines and other essential items.
Sri Lanka has already announced that it will suspend payment of $7 billion in foreign debt due this year, pending the outcome of negotiations with the International Monetary Fund on a rescue package. It must pay $5 billion on average annually through 2026.
Wickremesinghe said IMF assistance appears to be the country’s only option now. Agency officials are visiting Sri Lanka to discuss the idea. A staff-level agreement is likely to be reached by the end of July.
“We have concluded initial discussions and have exchanged ideas on various sectors,” Wickremesighe said.
Representatives of the government’s financial and legal advisers on debt restructuring are also visiting the island, and a team from the US Treasury will arrive next week, he said.
Krutika Pathi and Bharatha Mallawarachi in Colombo and Paul Wiseman in Washington contributed to this report.