Sri Lanka seeking $3 billion in months to stave off crisis: Finance minister

SriLankawill need about $3billionin external assistance within the next sixmonthsto help restore supplies of essential items, including fuel and medicines, to manage a severe economiccrisis, itsfinanceministertoldReuterson Saturday.

The island nation of 22 million people has been hit by prolonged power cuts, with drugs, fuel and other items running short, bringing angry protesters out on the streets and putting President Gotabaya Rajapaksa under mounting pressure.

"It's a Herculean task,"FinanceMinisterAli Sabry said in his first interview since takingoffice this week, referring to finding $3billionin bridge financing as the country readied for negotiations with the International Monetary Fund (IMF) this month.

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The South Asian island nation will look to restructure international sovereign bonds and seek a moratorium on payments, and is confident of negotiating with bondholders for an upcoming $1billionpayment 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 thatSriLanka's gross debt servicing would amount to $7billionthis year, with the current account deficit coming in around $3billion.

The country has $12.55billionin outstanding international sovereign bonds, according to central bank data, and foreign reserves of $1.93billionat 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.

Sense of confidence

Anti-government protests have raged across the island for days, with at least one turning violent in the country's commercial capital of Colombo, which have hurt the lucrative tourism industry that was ravaged by the COVID-19 pandemic.

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"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."

Sabry said he will lead a delegation ofSriLankanofficials 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.

SriLankan 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 hike taxes and fuel prices within sixmonthsand seek to reform loss-making state-owned enterprises, in an effort to fix publicfinances.

These measures were among key recommendations in an IMF review ofSriLanka'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. "But the choice is do you do that or do you go down the drain permanently?"

Friend of all

SriLankawill seek another $500 million credit line from India for fuel, which would suffice for about five weeks of requirements, Sabry said.

The government would also look for support from the Asian Development Bank, the World Bank and bilateral partners including China, the United States, Britain and countries in the Middle East.

"We know where we are, and the only thing is to fight back," Sabry said, looking relaxed in a blue T-shirt and jeans. "We have no choice."

Discussions are ongoing with China on a $1.5billioncredit line, a syndicated loan of up to $1billiondollars and a request fromSriLanka's president in January to restructure some debt.

"Hopefully we will be able to get some relief and which would help to keep theSriLankacommunity and the country afloat until larger infusions come in," Sabry said.

Beijing and New Delhi have long jostled for influence over the strategically located islandoffIndia's southern tip, with the country pulling closer to China under the powerful Rajapaksa family.

But in recent weeks, as the economiccrisisdeepened,SriLankahas leaned heavily on assistance from India.

"We are a neutral country. We are friend of all," said Sabry, a lawyer who previously served asSriLanka's justiceminister. "So we think that goodwill will come in handy at this point in time."