Sri Lanka hopes to reach initial agreement with IMF for help

Sri Lanka's central bank chief said Thursday he hopes the government can reach a preliminary agreement that could lead to a bailout package with the International Monetary Fund when its officials visit the crisis-hit island nation later this month.

The Indian Ocean country is effectively bankrupt and its economic crisis set off massive public protests that led to the ouster of President Gotabaya Rajapaksa last month. The government has said the crisis has made the negotiations with the IMF difficult.

Nandalal Weerasinghe, the governor of Sri Lanka's central bank, said he hoped IMF officials and Sri Lanka's government could “finalise and reach a staff-level agreement" on the policy package during their meetings.

Sri Lanka announced in April that it is suspending repayment of foreign loans. Its total foreign debt is $51 billion, of which it must pay $28 billion by 2027. The country has said it needs to restructure all of its debt.

Weerasinghe told reporters Thursday that the agreement being sought with the IMF would give them “a clear picture on debt sustainability and debt targets for us to achieve in the next 10 years.”

Once an agreement is reached, Weerasinghe said, Sri Lanka would approach sovereign bond holders and other external creditors.

"We hope all our creditors will support Sri Lanka once they see the strong macro program endorsed by the IMF," he said.

Sri Lanka’s new President Ranil Wickremesinghe said two weeks ago that his government had initiated negotiations with the IMF on a four-year rescue plan and had commenced the finalization of a debt restructuring plan.

However, Wickremesinghe also said negotiations with the IMF have been difficult because of Sri Lanka’s bankruptcy and that an expected early August target for an agreement with the agency was not possible. It is now expected in September.

Wickremesinghe was elected last month to complete the rest of Rajapaksa’s five-year term, which ends in 2024. Rajapaksa resigned in exile and is now in Thailand.

The protesters blamed Rajapakasa and his powerful family for years of mismanagement and corruption that have bankrupted the nation and led to unprecedented shortages of essential imports like fuel, medicine and cooking gas.

Wickremesinghe’s government is preparing a national policy roadmap for the next 25 years that aims to cut public debt and turn the country into a competitive export economy.

Wickremesinghe has stressed that Sri Lanka needs long-term solutions and a strong foundation to stop a recurrence of economic crises.

Two weeks ago, he said the hardships had eased somewhat with reduced power cuts, fertilizers being brought in for cultivation and cooking gas distribution improving.

• Sri Lanka's forex crisis has 'improved': Central Bank Governor