Sri Lanka’s prime minister said its economy faced complete collapse, as he laid the groundwork for what are expected to be tough austerity measures as part of negotiations over its budget and an International Monetary Fund bailout.
Sri Lankans have endured months of double-digit inflation, rolling power blackouts and acute food shortages. A bailout from the IMF is the only option to avert an impending economic disaster, Prime Minister Ranil Wickremesinghe said.
“We are now facing a far more serious situation beyond the mere shortages of fuel, gas,
electricity and food,” he said on Wednesday. “Our economy has faced a complete collapse.”
Sri Lanka is in the throes of its worst economic crisis after running out of foreign reserves to fund essential imports, a warning signal for potential financial trouble in the developing world from slowing growth and rising interest rates.
Sri Lanka defaulted for the first time in its history last month, and an IMF delegation arrived in the country on Monday to begin discussions on possible financial assistance. Authorities this week imposed a two-week shutdown of schools and nonessential government services to conserve fuel.
Frustration has continued to swell after violent nationwide protests prompted Mr.
Wickremesinghe’s predecessor, Mahinda Rajapaksa, to step down as prime minister on May 9. Food inflation soared to 57.4% in May and lines for fuel have more than doubled in recent weeks. Across the country, lines snake for miles, with people sometimes waiting for days in searing heat to refuel at gas pumps.
Sri Lanka’s president, Gotabaya Rajapaksa, has blamed the Covid-19 pandemic and the war in Ukraine—which have hurt tourism revenue and driven up commodity prices—for eroding the country’s finances. But Sri Lanka’s financial problems had taken root earlier, economists say, stemming from an accumulation of debt on infrastructure spending and tax cuts that drained government revenue.
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