Sri Lanka will require $5 billion over the next six months to maintain basic living standards, and the prime minister announced on Tuesday that the country is renegotiating the conditions of a $1.5 billion yuan-denominated exchange with China to pay crucial imports.
The island nation’s biggest economic crisis in seven decades resulted in a foreign exchange shortage, which slowed imports of critical products like gasoline, medicine, and fertilizer, prompting devaluation, public protests, and a change of administration.
Sri Lanka would require $3.3 billion in fuel imports, $900 million in food, $250 million in cooking gas, and $600 million in fertiliser this year to weather the storm, Prime Minister Ranil Wickremesinghe told parliament.
Wickremesinghe said the central bank estimates the economy would fall by 3.5 percent in 2022, but he is optimistic that growth can be restored with a robust reform program, debt restructuring, and foreign help.
“It’s not enough to achieve economic stability; we need to reconstruct the entire economy,” Wickremesinghe said, referring to his work on an interim budget to repair the country’s ailing finances.
“By the end of 2023, we must have achieved economic stability.”
The 22-million-strong Indian Ocean island is negotiating a $3 billion loan package from the International Monetary Fund, as well as assistance from China, India, and Japan.
The cabinet authorized a $55 million credit line from India’s Exim Bank on Tuesday to pay 150,000 tonnes of urea imports, which is an essential need given that supplies have run out during the current planting season.
“Farmers do not need to be concerned about not having inputs for the next season,” said government spokesperson Bandula Gunawardena, who estimated that 150,000 tons of urea will be required for the next planting cycle.
While food inflation of 57 percent is partially due to increasing global commodity costs, a devalued currency, and limited local output, the scarcity of fertiliser is expected to cut yields in half for the next harvest.
On Wednesday, the United Nations will make a worldwide public plea for Sri Lanka, with a guarantee of $48 million for food, agriculture, and health, according to Wickremesinghe.
Sri Lanka was also renegotiating the conditions of a $1.5 billion yuan-denominated swap agreed last year with China.
The exchange could only be used if Sri Lanka had reserves equivalent to three months’ worth of imports, according to the original stipulations.
But, with reserves significantly below that level, Wickremesinghe said, Sri Lanka must ask China to modify the condition and enable the swap to occur.
Wickremesinghe, who is also the finance minister, will present an interim budget next month, which he claims would cut government expenditure while still increasing yearly welfare spending to $500 million from $350 million.
