IMF in Sri Lanka to discuss worsening economic crisis

People stand in line to buy diesel at a Ceylon Petroleum Corporation fuel station in Colombo, Sri Lanka, on March 2, 2022. PHOTO: REUTERS

COLOMBO (AFP) - An IMF delegation was in Sri Lanka on Monday (March 14) for talks on the island's worsening economic crisis, with the public suffering through months of food, fuel and medicine shortages.

A lack of foreign currency has left traders unable to pay for vital imports in what authorities concede is the South Asian nation's worst financial crisis since independence from Britain in 1948.

Long queues outside gas stations and rolling blackouts have become the norm, while record inflation has caused serious hardship among the island's 22 million people by repeatedly pushing up the cost of groceries, transport and pharmaceuticals.

A senior staffer from the International Monetary Fund "will hold talks" with President Gotabaya Rajapaksa and his brother, finance minister Basil Rajapaksa, a spokesman for the leader told AFP.

Sri Lanka's government is divided on seeking a bailout, but the international lender said it was "ready to discuss options if requested" in a Monday statement.

The IMF warned earlier this month that the country's US$51 billion (S$70 billion) foreign debt was "unsustainable", and called for a currency devaluation and higher taxes to revive its almost bankrupt economy.

Sri Lanka last week allowed the rupee to float, a move that saw the currency nosedive 25 per cent against the US dollar and triggered a fresh wave of price increases.

Fuel costs have risen by nearly 80 per cent since early February while food prices rose by a quarter according to January figures.

The coronavirus pandemic hammered the South Asian island's tourism sector - a key foreign exchange earner.

Sri Lanka needs nearly US$7 billion to service its foreign debt this year, but the country's external reserves at the end of January were just over US$2 billion - enough to finance one month of imports.

International ratings agencies have downgraded Sri Lanka over expectations it may not be able to repay its borrowings, though the government insists it will.

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