Sri Lanka's President says IMF talks in final stages, unveils new budget

COLOMBO • The president of cash-strapped Sri Lanka yesterday announced further tax hikes and sweeping reforms, saying that bailout talks with the International Monetary Fund (IMF) were in the "final stage".

The country of 22 million people has suffered months of dire shortages and protests culminating in the ouster of Mr Gotabaya Rajapaksa as president last month.

Presenting a new budget, his successor Ranil Wickremesinghe said yesterday that value-added tax would rise from 12 per cent to 15 per cent for all goods and services from tomorrow.

He said a dedicated debt management agency was being set up to restructure borrowings.

In April, Colombo defaulted on its US$51 billion (S$71.19 billion) external debt.

"Negotiations with the International Monetary Fund have successfully reached their final stage," Mr Wickremesinghe told Parliament. "Discussions on debt restructuring will be held with the main countries that provide loan assistance to our country," he said referring to China, Japan and India, the top three creditors of the island.

Debt restructuring is crucial to clinching an agreement with the IMF, which resumed talks with Colombo last week after political upheaval last month held up negotiations.

Beijing has not publicly shifted from its offer of issuing more loans rather than taking a haircut on existing credit.

Mr Wickremesinghe said he would press ahead with politically unpopular "restructuring", seen as meaning the privatisation of state enterprises subsidised by taxpayers. His government has already raised prices of fuel and electricity more than threefold and removed energy subsidies, a key pre-condition for a possible IMF bailout.

Last week, Mr Wickremesinghe tightened import restrictions with a ban on more than 300 additional items, as the crisis showed no signs of abating.

Worker remittances, a key source of foreign exchange, have dropped by more than 50 per cent to US$1.6 billion in the six months to June compared to the same period last year.

"This crisis will not be solved by accusing one another, nor by faulting the past," Mr Wickremesinghe told Parliament while presenting the budget for the rest of the year.

Shortly after the President's speech, police in the capital Colombo fired tear gas and water cannon to break up a protest march by hundreds of university students unhappy with the government's handling of the crisis. Police said they arrested six students for disrupting traffic.

Separately, Japanese Finance Minister Shunichi Suzuki yesterday said Tokyo will coordinate with other creditors to resolve Sri Lanka's deepening financial crisis, urging all creditor nations to gather and discuss the South Asian nation's debt at the same table.

"We are concerned about Sri Lanka's severe socio-economic situation," Mr Suzuki told reporters.

Sri Lanka must accelerate talks with the IMF on a bailout, while all bilateral creditors, including China and India, must gather to discuss the issue, he added.

AGENCE FRANCE-PRESSE, REUTERS