Sri Lanka bankrupt, and a sharp pain will last at least until the end of next year, Prime Minister Ranil Wickremesinghe told parliament on Tuesday.
The island nation’s 22 million residents endured months of skyrocketing inflation and prolonged power outages after the government ran out of foreign currency to import vital goods.
Mr Wickremesinghe said the once-prosperous country will plunge into a deep recession this year, and acute shortages of food, fuel and medicines will continue.
“We will have to face difficulties in 2023,” the prime minister said. “This is true. This is reality”.
He said Sri Lanka’s current bailout talks with the International Monetary Fund (IMF) depended on finalizing a debt restructuring plan with creditors by August.
“Now we are negotiating as a bankrupt country,” Wickremesinghe said.
“Because of the state of bankruptcy our country is in, we have to submit our debt sustainability plan to them separately. Only when (the IMF) is satisfied with this plan can we come to an agreement.”
The IMF said last week that more work needed to be done to fix the country’s fiscal position and restore the runaway fiscal deficit before a financing deal could be struck to deal with the balance of payments crisis.
He also urged the authorities to take more action to fight corruption and end costly energy subsidies that have long drained the state budget.
Sri Lanka is almost completely without petrol and the government has shut down non-essential utilities to save fuel.
There have been clashes outside of several gas stations still selling fuel, with tens of thousands lining up for a slim chance to secure limited supplies, with no new supplies expected for at least two weeks.
The Sri Lankan government has closed non-essential utilities to save fuel. Source: Getty / NurPhoto
The United Nations estimates that about 80 percent of the population is skipping meals to cope with food shortages and record prices.
Mr Wickremesinghe said the IMF expects Sri Lanka’s economy to contract by 7 percent this year, even worse than the bleak forecasts released by the country’s central bank.
He said inflation could top 60 percent and the rapid depreciation of the currency over the past few months has wiped out the value of savings by half.
“Think about how this situation is affecting our seniors,” the 73-year-old prime minister said. “Poverty is spreading among them all.”
“The value of the money they receive has decreased by 50 percent. Their purchasing power has decreased by about 50 percent.”