COLOMBO, Sri Lanka – Sri Lanka will ask Japan to invite the Indian Ocean island’s main creditor nations, including China and India, to talks on bilateral debt restructuring, as it seeks a way out of its worst economic crisis in decades, its president said on Thursday, August 18.

“Someone needs to call in, invite the main creditor nations. We will ask Japan to do it,” President Ranil Wickremesinghe told Reuters in an interview, adding that he would travel to Tokyo next month and hold talks with Japanese Prime Minister Fumio Kishida.

Sri Lanka, a tear-shaped tropical country of 22 million people, is facing its most severe financial crisis since independence from Britain in 1948, resulting from the combined impact of the COVID-19 pandemic and economic mismanagement.

Left with scant foreign exchange reserves, stalling imports of essentials including fuel and medicines, ordinary Sri Lankans have been battling crippling shortages for months amid skyrocketing inflation and a devalued currency.

Public anger stoked unprecedented mass protests, with thousands of people storming the colonial-era presidential residence in Sri Lanka’s commercial capital Colombo in early July, forcing then-president Gotabaya Rajapaksa into hiding.

Protesters occupied the residence for days, some of them sleeping in the president’s bedroom and others frolicking in a swimming pool surrounded by manicured gardens.

Rajapaksa, a former military officer, then fled the country to Singapore and resigned, becoming the first Sri Lankan president to quit mid-term.

Wickremesinghe, a six-time prime minister, won a parliamentary vote and took office as president on July 21.

Local broadcaster Newsfirst, citing a former ambassador, said on Wednesday, August 17, that Rajapaksa would return home next week.

Wickremesinghe said he was “not aware” of any such plans, speaking to Reuters at the presidential secretariat, part of which had also been occupied by protesters.

Two budgets

Besides seeking assistance from its allies, Sri Lanka is also negotiating with the International Monetary Fund (IMF) for a loan package worth between $2 billion and $3 billion, Wickremesinghe said.

Sri Lanka’s total bilateral debt was estimated at $6.2 billion at the end of 2020 by the IMF, according to a March report.

An IMF team is expected to arrive in the country at the end of August to continue talks to reach a staff-level agreement.

Wickremesinghe, a six-time prime minister who is also finance minister, said he will present an interim budget in September which will focus on fiscal consolidation measures agreed with the IMF.

Expenditure will be slashed by a “few hundred billions” of rupees to channel funds for welfare and to repay high interest rates, he said.

Cuts will include defense, which has retained the highest budgetary allocation despite Singhalese-majority Sri Lanka ending a bloody civil war with Tamil rebels more than a decade ago.

The interim budget will be followed by a full-year budget for 2023, likely to be presented in November, where a broader recovery plan will be outlined.

“So, both those budgets will put out government policy. The first one on stabilization and the second one will look at recovery,” he said.

Overall, Wickremesinghe said he expects the economy, heavily reliant on tourism and tea, to see a recovery in the second half of 2023, reaching a revenue surplus of about 3% by 2025.

“I think we are restructuring to make Sri Lanka a very competitive, export-oriented economy,” he said. – Rappler.com