COLOMBO, Sri Lanka –
Sri Lanka’s debt-laden economy has “collapsed” after months of food, fuel and electricity shortages, the prime minister told lawmakers on Wednesday, commenting on the country’s plight as he sought help from international creditors.
Ranil Vikremesinghe told parliament that the South Asian nation was facing a “much more serious situation” than the shortage itself, and warned of a “possible fall 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 does not cite any specific new developments. His comments seemed intended to underscore critics and opposition lawmakers that he had inherited a difficult task that could not be solved quickly.
“He really has very low expectations,” said Anit Mukherjee, a policy associate and economist at the Center for Global Development in Washington.
Wickremesinghe’s remarks also sent a message to potential creditors: “You cannot allow a country of such strategic importance to collapse,” said Mukherjee, who noted that Sri Lanka is on one of the busiest shipping lanes in the world.
Sri Lanka’s economy is collapsing under heavy debt, lost tourism revenue and other consequences of the pandemic, as well as rising commodity costs. The result is a country heading for bankruptcy, with almost no money to import petrol, milk, cooking gas and toilet paper.
Lawmakers from the two 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 could not buy imported fuel because of the large debt owed by the oil corporation.
Ceylon Petroleum Corporation has a debt of $ 700 million, he told lawmakers. “As a result, no country or organization in the world wants to provide us with fuel. They are not even willing to provide fuel for money. “
The crisis has begun to hurt Sri Lanka’s middle class, which is estimated at 15% to 20% of the country’s urban population. The middle class began to swell in the 1970s as the economy opened up to more trade and investment. It has been growing steadily ever since.
Until recently, middle-class families generally enjoyed economic security. Now those who never have to think twice about fuel or food are struggling to manage three meals a day.
“They have really been shaken like no other in the last three decades,” said Bhavani Fonseca, a senior researcher at the Center for Political Alternatives in Colombo, Sri Lanka’s capital.
“If the middle class is fighting like this, imagine how hard the more vulnerable are affected,” Fonseca added.
The situation is derailing the years of progress towards a relatively comfortable lifestyle that is being pursued throughout South Asia.
Civil servants are given a break every Friday for three months to save fuel and grow their own fruit and vegetables. Food inflation is 57%, according to official figures.
Wickremesinghe took office after days of violent protests over the country’s economic crisis forced his predecessor to step down. On Wednesday, he accused the previous government of failing to act in time as Sri Lanka’s foreign reserves dwindled.
The foreign exchange crisis has limited imports, creating a serious shortage, including medicines, and forcing people to stand in long queues to meet basic needs.
“If at least steps had been taken to slow down the collapse of the economy in the beginning, we would not be facing this difficult situation today. But we missed this opportunity. “Now we see signs of a possible fall to the bottom,” he said.
So far, Sri Lanka is confused, largely backed by $ 4 billion in credit lines from neighboring India. But Wickremesinghe said India would not be able to keep Sri Lanka afloat for long.
He has also received promises of $ 300 million to $ 600 million from the World Bank to purchase drugs and other essentials.
Sri Lanka has already announced that it is suspending the payment of $ 7 billion in foreign debt due this year, pending the outcome of negotiations with the International Monetary Fund for a rescue package. It must pay an average of $ 5 billion a year by 2026.
Wickremesinghe said IMF assistance seems to be the only option for the country now. Agency officials are visiting Sri Lanka to discuss the idea. An agreement at staff level is likely to be reached by the end of July.
“We ended the initial discussions and exchanged ideas on different 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 Department will arrive next week, he said.
Krutika Patti and Bharata Malawarachi in Colombo and Paul Wiseman in Washington contributed to this report.
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