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Sri Lanka Says IMF May Provide Rapid Aid as India Backs Move

The debt-laden island nation is hoping the IMF can come up with a quick rescue package after its neighbour India lobbied Fund on its behalf


Sri Lanka's economic crisis has left the government with no money to even buy fuel.
A driver pushes his auto rickshaw after he ran out of fuel in Colombo. A load of fuel has been stranded at Colombo port since March 28 because the government has been unable to pay for it. Photo: Reuters.

 

The International Monetary Fund is prepared to consider providing quick financial aid to debt-burdened Sri Lanka after representations by India, Sri Lanka’s finance ministry said on Tuesday.

A delegation headed by Sri Lanka’s Finance Minister Ali Sabry kicked off formal talks with the IMF in Washington on Monday for a programme the government hopes will help top up its reserves and attract bridge financing to pay for essential imports of fuel, food and medicines.

Shamir Zavahir, an aide to Sabry, said on Twitter that Sri Lanka asked for a loan under the rapid financial instrument (RFI) window, meant for countries needing urgent balance-of-payment support. But the global lender was initially not inclined to grant the request, he said.

 

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“The IMF has subsequently informed Minister Sabry that India had also made representations on behalf of Sri Lanka for an RFI,” Sri Lanka’s finance ministry said in a statement.

“It had been communicated that IMF will consider the special request made despite it being outside of the standard circumstances for the issuance of an RFI.”

Sri Lanka’s sovereign dollar-denominated bonds came under pressure again on Tuesday, with longer-dated issues falling as much as 1.4 cents in the dollar to trade at deeply distressed levels of just over 40 cents, Tradeweb data showed.

The country’s devastating financial crisis has come as the effects of Covid-19 exacerbated mismanaged government finances and as rising prices of fuel sapped foreign reserves. Fuel, power, food and medicines have been running low for weeks.

Street protests have erupted against President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, in the island nation of 22 million people.

Sri Lanka is seeking $3 billion in the coming months from multiple sources including the IMF, the World Bank and India to stave off the crisis, Sabry said earlier this month.

 

China’s Financial Support

Both India and China have already extended billions of dollars in financial support to Sri Lanka. Sabry met his Indian counterpart Nirmala Sitharaman on the sidelines of the IMF deliberations, and both sides said they agreed to deepen their cooperation.

“India will fully support the deliberations of Sri Lanka with the IMF, especially on the special request made for expediting an extended fund facility,” Sabry’s office said, citing his meeting with Sitharaman.

Sources have said India would keep helping out its neighbour as it tries to regain influence lost to China in recent years. Beijing is one of Sri Lanka’s biggest lenders and has also built ports and roads there.

Last week, Sri Lanka’s central bank said it was suspending repayment on some of its foreign debt pending a restructure.

In the commercial capital Colombo, protests demanding the ousting of the Rajapaksas have dragged on for more than a week.

In parliament on Tuesday, the prime minister reiterated a call for a unity government that the opposition has rejected.

In a bid to quell the protests and demands for their resignation, the Rajapaksa brothers have also offered to reduce the executive powers of the president by amending the constitution.

“Together with the support of the president, we will move towards broad constitutional reforms,” said Mahinda Rajapaksa, a former president himself. “We request for support from the public, the opposition and all other stakeholders.”

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

 

Reluctance to Tap IMF Help Led Sri Lanka Into Economic Abyss

 

India Willing to Offer $2bn More in Aid to Sri Lanka

 

Sri Lanka Suspends ‘Impossible’ Foreign Debt Payments

 

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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