Race against time: Sri Lanka’s new PM tries to avert financial crisis

New Prime Minister Ranil Wickremesinghe pleads for patience as Sri Lankans hope a combination of reforms and international aid will rescue the country from crises stemming from debt and critical shortages.

First Look

Sri Lanka’s prime minister said Tuesday that the United Nations has arranged a worldwide public appeal to help the island nation’s food, agriculture, and health sectors face serious shortages amid its worst economic crises in recent memory, but the projected funds barely scratch the surface of the $6 billion the country needs to stay afloat over the next six months.

In his speech to Parliament, Prime Minister Ranil Wickremesinghe said the U.N. plans to provide $48 million in assistance over a four-month period.

Mr. Wickremesinghe said that for the next three weeks it will be tough to obtain some essentials and urged people to be united and patient, to use the scarce supplies as carefully as possible, and to avoid nonessential travel.

“Therefore, I urge all citizens to refrain from thinking about hoarding fuel and gas during this period. After those difficult three weeks, we will try to provide fuel and food without further disruptions. Negotiations are underway with various parties to ensure this happens,” Mr. Wickremesinghe said.

Lines to buy fuel and cooking gas have stretched for miles every day, snaking around blocks, with Sri Lankans weathering heavy rains and scorching heat to buy essential items that cost three times what they used to. Often, they have to wait days, and many still end up empty-handed.

Jagath Chandana has been waiting in line on the outskirts of the capital, Colombo, with a canister to buy cooking gas for two days. “It has been crazy. We are totally helpless. It seems even Ranil can’t resolve the crisis. They [politicians] just talk but on the ground level, people are suffering,” he said.

Sri Lanka is nearly bankrupt, having suspended repayment of its foreign loans. Its foreign reserves are almost spent, which has limited imports and caused serious shortages of essentials including food, medicine, fuel, and cooking gas.

The island nation is due to repay $7 billion this year of the $25 billion in foreign loans it is scheduled to pay by 2026. Sri Lanka’s total foreign debt is $51 billion.

Authorities have started discussions with the International Monetary Fund for a bailout package and Mr. Wickremesinghe asked the IMF to lead a conference to unite Sri Lanka’s lending partners.

“Holding such a conference under the leadership of India, China, and Japan will be a great strength to our country. China and Japan have different credit approaches. It is our hope that some consensus on lending approaches can be reached through such a conference,” Mr. Wickremesinghe said.

A decision taken last year to ban agrochemicals and make the country’s agriculture totally organic has halved rice production during the main cultivating season, though the ban has since been withdrawn. A lack of funds to buy fertilizer threatens future yields, too, causing fears of a food crisis.

Mr. Wickremesinghe said chemical fertilizer imports cost $600 million a year and $150 million will be needed to import food each month. Another $1 billion will be required to strengthen the local currency and in all Sri Lanka will need about $6 billion to stay afloat for the next six months, he said.

“The task of rebuilding our declining agriculture must begin immediately. We are losing the international market for our export crops. Action must be taken to prevent this. Chemical fertilizers are needed to boost local agriculture,” he said.

Mr. Wickremesinghe took over after days of violent protests last month forced his predecessor, President Gotabaya Rajapaksa’s brother Mahinda, to step down and seek safety from angry crowds at a naval base. 

But time may not be on his side as reforms are slow and people want results now. He’s also a one-man party in Parliament – the only lawmaker from his party to hold a seat after it suffered a humiliating defeat in a 2020 election.

“A person who doesn’t have a political base has an unprecedented crisis to manage,” said Dayan Jayatilleka, a former diplomat and political analyst.

Mr. Wickremesinghe said that before he took over as prime minister, the government had alienated Sri Lanka’s long-time allies.

“Japan is our long-time friend. A nation that has helped our country greatly. But they are now unhappy with us due to the unfortunate events of the past,” Mr. Wickremesinghe said. “Our country had failed to formally notify Japan of the suspension of certain projects. Sometimes the reasons for these suspensions were not even stated.”

Sri Lanka canceled and reinstated a port development project with India and Japan multiple times in the years following their initial 2019 agreement.

“Despite alienating these friendly nations, India offered to help us in the face of the growing crisis. We express our respect and gratitude to them during this difficult time. We are also working to re-establish old friendships with Japan.”

India has provided billions of dollars’ worth of help to Sri Lanka through loans and credit lines since the crisis started.

Sri Lanka’s Foreign Employment Minister Manusha Nanayakkara said the government plans to send part of its bloated state workforce on overseas employment to earn much-needed foreign currency. He said the health ministry is also formulating laws to help state health workers seek foreign jobs.

Remittances from overseas workers has been one of Sri Lanka’s main economic lifelines along with garment exports and tourism, but that income has drastically declined because authorities held the value of U.S. dollar artificially and made conversion of foreign money into local currency compulsory, leading many to use illegal channels to transfer funds.

Mr. Nanayakkara said Sri Lanka typically received $700 million a month in remittances from expatriate workers, but the figure dropped to $230 million in March.

The economic crisis has led to political turmoil in the country. Protesters have been camped outside the president’s office for more than 50 days calling for the resignation of President Rajapaksa, whom they accuse of being responsible for the crisis.

Protests have almost dismantled the once-powerful Rajapaksa political dynasty with the president’s brother resigning as prime minister last month amid violent protests. Three other family members had already resigned from Cabinet positions this year.

While signs of financial hardship and struggle remain in Sri Lanka, there is growing hope among some that Mr. Wickremesinghe will see them through the tough times.

“He can’t perform miracles, it will take time to resolve the crisis because previous ministers have messed up,” said Amila Prasanna, a carpenter. “He is trying to solve the problems, one by one, and I am sure he will do something,” he said as he waited in a long line to buy gas.

This story was reported by The Associated Press.