March 12 (Reuters) – Sri Lanka will begin talks with the International Monetary Fund (IMF) next month on a plan to help the crisis-hit country, including assistance with debt restructuring and managing its foreign exchange shortage, three sources said on Friday.
Sri Lanka is facing its worst financial crisis in years. With foreign exchange reserves standing at a paltry $2.31 billion, the country is struggling to pay for critical imports including fuel, food and medicines.
The move to approach the IMF for help comes after months of resistance from Sri Lanka’s government and central bank, despite calls from opposition leaders and experts to seek a bailout package.
Finance Minister Basil Rajapaksa will travel to Washington D.C. in mid-April to present Sri Lanka’s proposal to senior IMF officials, two sources with knowledge of the ongoing discussions told Reuters.
“We are taking our proposal and a plan,” one of the sources said, declining to be named since the discussions are confidential. “The government is serious about fixing things.”
The island nation has to repay about $4 billion in foreign debt this year, including a $1 billion international sovereign bond maturing in July.
“We will discuss options based on our plans,” the source said.
Sri Lanka’s finance ministry and the IMF did not immediately respond to questions from Reuters.
A combination of historically weak government finances, badly timed tax cuts and the COVID-19 pandemic, which hit the country’s lucrative tourism industry and foreign remittances, have wreaked havoc on Sri Lanka’s economy.
In a periodic review last week, the IMF called on the government to implement a “credible and coherent” strategy to repay debt and restore macroeconomic stability.
“The country faces mounting challenges, including public debt that has risen to unsustainable levels, low international reserves, and persistently large financing needs in the coming years,” the IMF said.
To find a way out of the crisis, the government will seek assistance with debt restructuring, the foreign exchange crisis, bolstering revenue generation and reforming state-owned enterprises, the source said.
“This is a tough situation,” the source said, “We want to see what support we can get from the IMF.”
In recent weeks, the country of 22 million has faced rolling electricity cuts. Bakeries have run out of gas and many fuel pumps have run dry. Soaring oil prices have added to the government’s woes.
Late on Monday, Sri Lanka’s Central Bank implemented a flexible exchange rate for the rupee, triggering a devaluation of about 30% and driving up the prices of many essential items.