Sri Lanka's new PM to sell national airline, print money to pay salaries

Sri Lanka’s new government plans to sell its national airline to stem losses, part of efforts to stabilize the nation’s finances even as authorities are forced to print money to pay government salaries. 

The new administration plans to privatize Sri Lankan Airlines, Prime Minister Ranil Wickremesinghe said in a televised address to the nation Monday. The carrier lost 45 billion rupees ($124 million) in the year ending March 2021, he said just days before the nation is set to formally default on foreign debt.

“It should not be that this loss has to be borne by the poorest of the poor who have not set foot in an aircraft,” Wickremesinghe said.

Wickremesinghe -- less than a week into the job -- said he was forced to print money to pay salaries, which will pressure the nation’s currency. The nation has only one day’s stock of gasoline and the government is working to obtain dollars in the open market to pay for three ships with crude oil and furnace oil that have been anchored in Sri Lankan waters, Wickremesinghe said.

“The next couple of months will be the most difficult ones of our lives,” Wickremesinghe said. “We must immediately establish a national assembly or political body with the participation of all political parties to find solutions for the present crisis.”

The premier pledged to announce a new “relief” budget to replace President Gotabaya Rajapaksa’s “development” budget that helped stoke Asia’s fastest inflation rate. The cabinet will propose that parliament increase the treasury bill issuance limit to 4 trillion rupees from 3 trillion rupees, Wickremesinghe said, forecasting a budget deficit of 13% of gross domestic product for the year ending December 2022.

Wickremesinghe’s appointment last week followed violent clashes between government supporters and protesters demanding Rajapaksa’s resignation. He has yet to appoint a finance minister to lead bailout talks with the International Monetary Fund, and is seeking bridge loans from nations including India and China. But it’s unclear if the government will get the cash in the absence of a full cabinet. 

Sri Lanka is sliding into a default as the grace period on two unpaid foreign bonds ends on Wednesday, the latest blow to a country rattled by economic pain and social unrest. 

The nation’s dollar bonds edged higher on Monday, though they remained deep in distressed territory. The extra yield investors demand to hold the sovereign notes over US Treasuries narrowed 22 basis points to 37.29 percentage points, according to JPMorgan Chase & Co. data.

In 2010, the government in Colombo bought back a stake in Sri Lankan Airlines from Dubai’s Emirates. The national carrier, which has a fleet of 25 Airbus SE planes, flies to destinations in Europe, the Middle East as well as South and Southeast Asia, according to FlightRadar24.

Key points from speech:

• Revenue in 2022 likely to be 1.6 trillion rupees versus budget estimate of 2.3 trillion
• Need $75 million “within the next couple of days”
• “There is a possibility that inflation will increase further”; government can no longer bear subsidies on gasoline and diesel