Sri Lankan PM says economy ‘collapsed’, unable to buy oil

Colombia, Sri Lanka – Sri Lanka’s debt-ridden economy has “collapsed” after months of food, fuel and power shortages, its prime minister told lawmakers on Wednesday, in comments highlighting the country’s dire situation as he seeks help from international lenders.

Prime Minister Ranil Wickremesinghe told parliament that the South Asian country “is facing a much more serious situation beyond just shortages of fuel, gas, electricity and food. Our economy has completely collapsed”.

Crisis in Sri Lanka
Women wait in a queue to buy kerosene in Colombo, Sri Lanka, Saturday, June 11, 2022. Sri Lanka’s economic crisis, the worst in its history, has completely reshaped life for the country’s rampant middle class country.

Eranga Jayawardena / AP

While Sri Lanka’s crisis is considered the worst in recent memory, Wickremesinghe’s claim that the economy has collapsed cites no specific new developments. He seemed destined to underscore to his critics and opposition lawmakers that he inherited a difficult task that cannot be resolved quickly, as the economy crumbles under the weight of heavy debt, the loss tourism revenue and other impacts of the pandemic, as well as soaring commodity prices.

Lawmakers from the country’s two main opposition parties are boycotting parliament this week to protest Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for failing to keep his promises to revive the economy.

Wickremesinghe said Sri Lanka was unable to buy imported fuel, even for cash, because of its oil company’s heavy debt.

“Currently the Ceylon Petroleum Corporation is $700 million in debt,” he told lawmakers. “As a result, no country or organization in the world is willing to provide us with fuel. They are even reluctant to provide fuel for cash.”

Wickremesinghe took office after days of violent protests over the country’s economic crisis that forced his predecessor to resign. In his comments on Wednesday, he blamed the previous government for failing to act in time as Sri Lanka’s foreign exchange reserves dwindled.

The foreign currency crisis has reduced imports, creating severe shortages of food, fuel, electricity and other essentials such as medicine, forcing people to queue for their basic needs.

“If measures had at least been taken to slow the collapse of the economy at the start, we would not be facing this difficult situation today. But we have missed this opportunity. We are now seeing signs of a possible drop to rock bottom,” he said.

So far, Sri Lanka has gotten its way, mostly backed by $4 billion in credit lines from neighboring India. But Wickremesinghe said India would not be able to keep Sri Lanka afloat for long.

He also received pledges of $300-600 million from the World Bank to buy medicines and other essentials.

Sri Lanka has already announced that it suspend repayment of $7 billion external debt due this year, pending the outcome of negotiations with the International Monetary Fund on a rescue plan. It must pay $5 billion on average annually until 2026.

Wickremesinghe said IMF assistance appears to be the country’s only option now. Agency officials travel to Sri Lanka to discuss a rescue plan. A personnel agreement should be concluded by the end of July.

“We concluded the initial discussions and we exchanged ideas on various sectors such as public finance, finance, debt sustainability, banking sector stability and the social safety net,” Wickremesighe said.

Representatives of the government’s financial and legal advisers on debt restructuring, Lazard and Clifford Chance, are also visiting the island and a team from the US Treasury will arrive next week, he said.