IMF delegation visits crisis-hit Sri Lanka, time is running out

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COLOMBO/LONDON, June 20 (Reuters) – A team from the International Monetary Fund (IMF) arrives in Sri Lanka on Monday for talks on a rescue package, but time is running out for a country days from running out of fuel and likely to months of getting any relief money.

Sri Lanka is grappling with its worst financial crisis since independence in 1948, as decades of economic mismanagement and recent policy mistakes have combined with a COVID-19 hit to tourism and remittances, reducing foreign exchange reserves at record highs. Read more

The island nation of 22 million people suspended payment of a $12 billion debt in April. The United Nations has warned that soaring inflation, a falling currency and chronic shortages of fuel, food and medicine could escalate into a humanitarian crisis. Read more

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The IMF team, visiting Colombo until June 30, will continue recent talks on what would be Sri Lanka’s 17th bailout package, the IMF said on Sunday.

“We reaffirm our commitment to support Sri Lanka at this difficult time, in line with IMF policies,” the global lender said in a statement.

Colombo hopes the IMF visit, which overlaps with debt restructuring talks, will lead to a quick agreement at staff level and a fast track for IMF board disbursements. But that usually takes months, while Sri Lanka risks more shortages and political unrest.

“Even if a staff-level agreement is reached, final approval of the program will depend on assurances that official creditors, including China, are willing to provide adequate debt relief,” said Patrick Curran, economist. Principal of US investment research firm Tellimer.

“All things considered, restructuring is likely to be a protracted process.”

But the crisis is already overwhelming for average Sri Lankans, like rickshaw driver Mohammed Rahuman, 64, who recently stood in line for more than 16 hours for petrol.

“They say petrol will come but nothing yet,” he told Reuters. “Things are very difficult. I can’t make money, I can’t go home and I can’t sleep.”

Winding lines of several kilometers have formed outside most gas pumps since last week. Schools in urban areas closed and public officials were told to work from home for two weeks. Read more

Bondholders expect the IMF visit to provide clarity on how much debt Sri Lanka can pay off and what haircuts investors may have to accept.

“This IMF visit is very important – the country will need all the help and support it can get,” said Lutz Roehmeyer, portfolio manager at Berlin-based bondholder Capitulum Asset Management. “For many international bondholders, this will be a key requirement to ensure they come to the table and talk about debt restructuring first.”

Prime Minister Ranil Wickremesinghe said this month that an IMF program was crucial to access bridge financing from sources such as the World Bank and the Asian Development Bank.

Representatives of Sri Lanka’s financial and legal advisers, Lazard and Clifford Chance, are in Colombo. Read more

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Reporting by Uditha Jayasinghe and Karin Strohecker in Colombo; Editing by William Mallard

Our standards: The Thomson Reuters Trust Principles.

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