COLOMBO: Sri Lanka’s unprecedented shortages of vital food, fuel and medicine will worsen before an international bailout is negotiated, its finance minister warned on Friday as inflation hit another record.
Ali Sabry, who is in Washington for talks with international lenders, said an IMF bailout may take months but he is seeking about $2.5 billion in emergency assistance from others.
“It’s going to get worse before it gets better,” Sabry told reporters at an online news conference. “It’s going to be a painful few years ahead.”
However, he added that he was optimistic that Sri Lanka could “come out of this strong and we may not even have to go to an IMF program ever again”.
His comments came as official data showed Sri Lanka’s inflation hit a record high for the sixth consecutive month as the country was hit by never-before-experienced shortages.
The statistics office said the broad-based National Consumer Price Index (INPC) rose 21.5% year-on-year in March, more than four times the previous year’s 5.1% inflation.
Food inflation in March stood at a whopping 29.5%, the highest in history.
The figures are likely to rise further: the state oil company subsequently raised the price of diesel, commonly used in public transport, by 64.2%.
Worsening economic problems have sparked clashes in demonstrations across the country calling on President Gotabaya Rajapaksa to resign over mismanagement and corruption.
Sri Lanka turned to the International Monetary Fund this week for emergency assistance but was told its external debt was “unsustainable” and needed to be “restructured” before any help.
“Approval of an IMF-backed program for Sri Lanka would require adequate guarantees that debt sustainability will be restored,” the IMF said.
Last week, the government announced a default on its foreign debt, saying the valuable foreign currency would be set aside to finance essential food and medicine.
– ‘The worst financial crisis’ –
Sabry said he admitted to the IMF that Sri Lanka’s recent economic blunders in cutting taxes worsened the crisis and that Colombo should have sought its help much sooner.
“We have accepted our mistakes… There is no denying the fact that we are facing the worst financial crisis in the history of our country,” he said.
Sabry added that Colombo will move for debt restructuring as required by the IMF, and in the meantime will turn to neighboring India for more lines of credit to import fuel and other essentials.
He was also hoping to get “some $500 million” from the World Bank to import food and cooking gas in the next four months, he said.
Sri Lanka will also turn to other key bilateral lenders, China and Japan, to address the currency crisis.
The acute shortage has caused widespread discontent. Police clashed with protesters in central Sri Lanka on Tuesday, killing one of them and injuring nearly 30.
At least eight people have also died waiting in long lines for fuel in the last six weeks.
The country’s shortage of foreign exchange has led to a slowdown in imports, including essential ones.
Stores have rationed the amount of rice, milk powder, sugar, lentils and canned fish sold to consumers.
Sri Lanka’s economy has collapsed since the start of the pandemic, with tourism receipts and remittances from foreign workers plummeting.