No one will sell us oil, Sri Lanka PM says economy ‘collapsed’

Kerihan Francis, The Associated Press

Date: June 22, 2022 7:25AM EST

Last update Wednesday, June 22, 2022 4:16 PM EST

COLOMBO, Sri Lanka (AP) – Sri Lanka’s debt-laden economy has “collapsed” after months of shortages of food, fuel and electricity, the prime minister told lawmakers on Wednesday in comments underscoring the dire situation in the country as it seeks help from international lenders. .

Ranil Wickremesinghe told parliament that the South Asian country was facing a “much more serious situation” than shortages alone, and warned of “the potential for rock bottom”.

“Our economy has completely collapsed,” he said.

The crisis on the island of 22 million people is the worst in recent memory, but Wickremesinghe did not indicate any specific new developments. His comments seemed intended to assure critics and opposition MPs that he had inherited a difficult task that could not be resolved quickly.

β€œIt sets really low expectations, really,” said Annette Mukherjee, a policy fellow and economic expert at the Center for Global Development in Washington.

Wickremesinghe’s comments also sent a message to potential lenders: “You cannot let a country of such strategic importance fall apart,” said Mukherjee, who noted that Sri Lanka lies in one of the world’s busiest shipping lanes.

Sri Lanka’s economy is collapsing under the weight of heavy debt, lost tourism revenues and other effects of the pandemic, as well as rising commodity costs. The result is a country heading towards bankruptcy, with almost no money to import gasoline, milk, cooking gas, and toilet paper.

Lawmakers from the two main opposition parties boycotted parliament this week in protest of Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for failing to deliver on his pledges to transform the economy.

Wickremesinghe said Sri Lanka is unable to purchase the imported fuel due to the heavy debts owed by the petroleum company.

He told lawmakers that Ceylon Petroleum has a debt of $700 million. As a result, no country or organization in the world is willing to provide us with fuel. They are even reluctant to save fuel for money.”

The crisis is starting to hit 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 after the economy opened up to more trade and investment. It has grown steadily since then.

Until recently, middle-class families generally enjoyed economic security. Now those who haven’t thought twice about fuel or food are struggling to manage three meals a day.

“They have been traumatized like never before in the past three decades,” said Bhavani Fonseka, senior researcher at the Center for Policy Alternatives in Colombo, the capital of Sri Lanka.

“If the middle class is struggling in this way, imagine how much damage it takes to the most vulnerable people,” Fonseca added.

This situation has taken out years of progress towards the relatively comfortable lifestyles that they look forward to across South Asia.

Government officials were given three months off every Friday to save fuel and grow fruits and vegetables themselves. The food inflation rate was 57%, according to official data.

Wickremesinghe took office after days of violent protests over the country’s economic crisis, forcing his predecessor to step down. On Wednesday, he blamed the previous government for failing to act in time as Sri Lanka’s foreign reserves dwindled.

The foreign exchange crisis hampered imports, leading to severe shortages of medicines, and forcing people to stand in long queues for basic necessities.

Had steps been taken at least to slow the economy down in the beginning, we would not be facing such a difficult situation today. But we lost this opportunity. He said, “We are now witnessing signs of a possible fall to rock bottom.”

So far, Sri Lanka has been on the loose, buoyed mainly by $4 billion 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 between $300 million and $600 million from the World Bank to purchase medicines and other essential items.

Sri Lanka has already announced that it is suspending repayment of $7 billion of external debt maturing this year, pending the outcome of negotiations with the International Monetary Fund on the rescue package. It should pay an average of $5 billion annually until 2026.

Wickremesinghe said it appears that IMF assistance is the only option for the country 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 finished the initial discussions, and we exchanged ideas on various sectors,” Wickremesighe said.

He 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.

Krutika Pathy and Paratha Malawarashi in Colombo and Paul Wiseman in Washington contributed to this report.

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