COLOMBO, Sri Lanka –
Sri Lanka’s debt-ridden economy has “collapsed” after months of shortages of food, fuel and electricity, the prime minister told lawmakers on Wednesday in comments that underlined the country’s dire situation as it seeks help from international lenders.
Ranil Wickremesinghe told parliament that the South Asian nation is facing “a far more serious situation” than the shortage alone, and he warned of “a possible fall to the bottom.”
“Our economy has completely collapsed,” he said.
The crisis on the island of 22 million is considered to be the worst in recent times, but Wickremesinghe did not mention any specific new development. His comments seemed intended to emphasize to critics and opposition lawmakers that he has inherited a difficult task that cannot be solved quickly.
“He sets expectations really, really low,” said Anit Mukherjee, a policy fellow and economist at the Center for Global Development in Washington.
Wickremesinghe’s remarks also sent a message to potential lenders: “You can not let a country of such strategic importance collapse,” said Mukherjee, noting that Sri Lanka is on one of the world’s busiest shipping routes.
The Sri Lankan economy is under the weight of heavy debt, lost tourism revenue and other effects of the pandemic, as well as rising raw material costs. The result is a country on the verge of bankruptcy, with almost no money to import petrol, milk, cooking gas and toilet paper.
Lawmakers from the two main opposition parties are boycotting Parliament this week to protest against Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for not living up to his promises to turn the economy around.
Wickremesinghe said Sri Lanka is unable to buy imported fuel due to large debts owed by its oil company.
Ceylon Petroleum Corporation is $ 700 million in debt, he told lawmakers. “As a result, no country or organization in the world is willing to provide fuel for us. They are even reluctant to provide fuel for cash.”
The crisis has begun to hurt Sri Lanka’s middle class, which is estimated to account for 15% to 20% of the country’s urban population. The middle class began to swell in the 1970s, after the economy opened up for more trade and investment. It has grown steadily since.
Until recently, middle-class families generally enjoyed financial security. Now those who have never had to think twice about fuel or food are struggling to make ends meet three meals a day.
“They have really moved like no other time in the last three decades,” said Bhavani Fonseka, a senior researcher at the Center for Political Alternatives in Colombo, the capital of Sri Lanka.
“If the middle class is fighting this way, imagine how hard hit the more vulnerable are,” Fonseka added.
The situation has derailed many years of progress towards a relatively comfortable lifestyle that is being pursued throughout South Asia.
Every Friday, government officials have been given three months off to save fuel and grow their own fruits and vegetables. The inflation rate for food is 57% according to official data.
Wickremesinghe took office after days of violent protests over the country’s economic crisis forced his predecessor to resign. On Wednesday, he accused the previous government of not acting in time as Sri Lanka’s foreign exchange reserves fell.
The currency crisis has pushed imports down and created the severe shortage, which also includes medicine, and forced people to stand in long queues to get basic needs.
“If at least steps had been taken to slow down the collapse of the economy in the beginning, we would not face this difficult situation today. But we lost this opportunity. We now see signs of a possible fall to the bottom,” he said.
So far, Sri Lanka has been messed through, mainly backed by $ 4 billion in lines of credit from neighboring India. But Wickremesinghe said India would not be able to keep Sri Lanka afloat for long.
It has also received commitments of $ 300 million to $ 600 million from the World Bank to purchase medicines and other important items.
Sri Lanka has already announced that it is suspending the repayment of $ 7 billion in foreign debt due this year, pending the outcome of negotiations with the International Monetary Fund on a rescue package. It should pay $ 5 billion on average annually until 2026.
Wickremesinghe said IMF assistance appears to be the country’s only option now. Agency officials are visiting Sri Lanka to discuss the idea. An agreement at staff level is expected to be reached by the end of July.
“We have concluded the initial discussions and we have exchanged ideas on different sectors,” Wickremesighe said.
Representatives of financial and legal advisers to the government on debt restructuring are also visiting the island, and a team from the U.S. Treasury Department will arrive next week, he said.
Krutika Pathi and Bharatha Malawarachi of Colombo and Paul Wiseman of Washington contributed to this report.