Crisis-hit Sri Lanka seeks emergency financial assistance from IMF

Sri Lanka has requested the International Monetary Fund for a speedy bailout package as officials battle to save the island nation from economic troubles that have snowballed into a deepening political crisis.
 

The country’s Finance Minister Ali Sabry, who on Monday kicked off bailout talks with the lender of last resort in Washington, is seeking IMF’s rapid financial assistance to tackle growing shortages of food, fuel and medicines.   

“Minister of Finance has made a request for a Rapid Financing Instrument with the IMF,” the government said in a statement Tuesday. “It had been communicated that IMF will consider the special request made despite it being outside of the standard circumstances for the issuance of an RFI.”

IMF members can access one-off emergency loans, with few conditions, through the lender’s Rapid Credit Facility and Rapid Financing Instrument. This payout, however, is capped at 50% of a state’s quota for a year, which in Sri Lanka’s case works out to $395 million -- or 289 million in special drawing rights, the IMF’s unit of account. 

That is only a fraction of what the tiny South Asian nation needs. Sri Lanka is seeking up to $4 billion this year to tide over problems and pay creditors amid dwindling foreign reserves and Asia’s fastest inflation. Last week, the country warned of an unprecedented default and halted payments on foreign debt, leading to a series of downgrades of the nation’s credit rating.

While the emergency funds can help stabilize things in the short term, Colombo would need a credible debt plan to avail more funds. The $81 billion economy is facing $8.6 billion worth of debt obligations this year including a $1.03 billion debt payment due July, according to data compiled by Bloomberg.

Authorities have raised benchmark rates, devalued the currency and placed curbs on non-essential imports. It is also looking at austerity measures and a price formula to minimize losses on fuel to save dollars.

“IMF has assured their fullest support to Sri Lanka and a positive response has also been received to expedite the process to strengthen the support extended towards Sri Lanka,” the statement said. 

Sri Lanka’s opposition leader, though, on Tuesday warned the country is facing a period of “extreme austerity” and said he’s pushing to build support in parliament to change the constitution and remove the Rajapaksa family from power. On Monday, President Gotabaya Rajapaksa said he is open to reviewing his executive powers after weeks of protests calling for his ouster.