Sri Lanka’s economy has collapsed: Wickremesinghe

of Sri Lanka Debt-ridden economy ‘collapsed’ After months of shortages of food, fuel and electricity, the prime minister told lawmakers on Wednesday in remarks that the country’s dire situation was underscored as it sought help from international lenders.

Prime Minister Ranil Wickremesinghe told parliament that the South Asian nation was facing a “far more dire situation” than the shortage alone, and he warned of a “potential downside”.

“Our economy has completely collapsed,” he said.

The crisis on the island of 22 million is considered the worst in recent memory, but Wickremesinghe did not cite any specific new developments. His comments were intended to emphasize to critics and opposition lawmakers that he has inherited a difficult task that cannot be fixed quickly.

The economy is reeling under heavy debt, lost tourism revenue and other effects of the pandemic as well as rising commodity costs. The result is a country headed for bankruptcy, with hardly any money to import petrol, milk, cooking gas and toilet paper.

MPs from the two main opposition parties are boycotting parliament this week to protest Wickremesinghe, who became prime minister just a month ago, and also finance minister for failing to deliver on his promises to transform the economy. .

Wickremesinghe said Sri Lanka was unable to buy imported fuel due to heavy debt on its petroleum corporation.

He told lawmakers that Ceylon Petroleum Corporation owed $700 million in debt. “As a result, no country or organization in the world is ready to provide us with fuel. They are also shying away from providing fuel for cash. The crisis has begun to hurt Sri Lanka’s middle class, which is estimated to make up 15% to 20% of the country’s urban population. The middle class began to develop in the 1970s after the economy opened up to more trade and investment. It has grown steadily since then.

Until recently, they generally enjoyed economic security. Now families who never had to think twice about fuel or food are struggling to manage three meals a day.

“In the past three decades they have really been shocked like no other time,” said Bhavani Fonseca, a senior researcher at the Center for Policy Alternatives in Colombo, Sri Lanka.

“If the middle class is struggling like this, imagine how hard the more vulnerable are,” Fonseca said.

The situation has derailed years of progress towards a relatively comfortable lifestyle across South Asia.

Government officials have been given a three-month holiday every Friday to save fuel and grow their own fruits and vegetables. inflation According to official figures, the food rate is 57%.

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

The foreign exchange crisis has slashed imports, created severe shortages including pharmaceuticals and forced people to stand in long lines to get basic necessities.

“If steps had been taken to slow the collapse of the economy at least initially, we would not be facing this difficult situation today. But we missed this opportunity. We are now seeing signs of a possible downtrend to rock bottom,” he said.

So far, Sri Lanka has been wrangling through, mainly backed by $4 billion in credit lines from neighboring India. But Wickremesinghe said that India will not be able to save Sri Lanka for long.

It has also received a pledge of $300 million to $600 million from the World Bank to buy medicine and other essential items.

Sri Lanka has already announced that it is suspending repayment of $7 billion in foreign debt due this year, pending the outcome of talks with the International Monetary Fund on a rescue package. It will have to pay an average of $5 billion annually by 2026.

Wickremesinghe said that IMF aid is now the country’s only option. Agency officials are visiting Sri Lanka to discuss the idea. A staff-level agreement is likely to be in place by the end of July.

“We have completed the initial discussions and we have exchanged views on different areas,” Wickremesinghe 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 would arrive next week.