An International Monetary Fund (IMF) team is arriving in Sri Lanka on Monday to negotiate a bailout program, but the country has just a few days before running out of fuel and likely months before receiving any bailout money.
Sri Lanka is grappling with the worst financial crisis since independence in 1948 as decades of economic mismanagement and recent political mismanagement combine to hit COVID-19 tourism and remittances, which led to the reduction of foreign exchange reserves to record low levels.
The island nation of 22 million people suspended $12 billion in debt in April. The UN warned of a sharp rise inflationa falling currency and a chronic shortage of fuel, food and medicine could lead to a humanitarian crisis.
The IMF team, which will visit Colombo before June 30, will continue recent talks on what will be Sri Lanka’s 17th bailout program, the IMF said on Sunday.
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“We reaffirm our commitment to supporting Sri Lanka during this difficult time, in line with IMF policy,” the global lender said in a statement.
Colombo hopes that the visit to the IMF, coinciding with the debt restructuring talks, will lead to a quick agreement at the staff level and faster payments to the IMF board. But this usually takes months, while Sri Lanka risks exacerbating shortages and political unrest.
“Even if a staff-level agreement is reached, final approval of the program will depend on assurances that official creditors, including China, are willing to provide adequate debt relief,” said Patrick Curran, senior economist at US investment research firm Tellimer.
“All things considered, restructuring is likely to be a lengthy process.”
But the crisis has already stunned ordinary Sri Lankans, such as 64-year-old autorickshaw driver Mohammed Rahuman, who recently stood in line for more than 16 hours of petrol.
“They say there will be gasoline, but nothing yet,” he told Reuters. “Everything is very difficult. I can’t make money, I can’t go home and I can’t sleep.”
Since last week, winding lines several kilometers long have formed around most fuel pumps. Schools in urban areas have been closed and government employees have been asked to work from home for two weeks.
Bondholders expect the IMF visit to clarify how much debt Sri Lanka can repay and what haircuts investors may have to go for.
“This IMF visit is very important – the country will need all the help and support it can get,” said Lutz Röhmeyer, portfolio manager at Berlin-based bondholder Capitulum Asset Management. “For many international bondholders, this will be a key requirement to make sure they sit down at the negotiating table and talk about debt restructuring first.”
Prime Minister Ranil Wickremesinghe said this month that the IMF program is critical to access bridge financing from sources such as the World Bank and the Asian Development Bank.
Representatives of Sri Lankan financial and legal advisors Lazard and Clifford Chance are based in Colombo.