Colombo (AP) – For now, the bankrupt island nation of Sri Lanka is receiving no help from the International Monetary Fund to tackle its worst economic crisis in decades. The deal with the IMF on an aid package has been postponed until September due to recent protests by opponents of the government, Sri Lanka’s new President Ranil Wickremesinghe said in his first speech since being elected by parliament on July 20.
Wickremesinghe was quoted as saying on Sunday that he hoped to reach a deal as early as the first week of August. Due to a lack of currency reserves, India’s southern neighbor went bankrupt for the first time in May.
The island nation, which has $51 billion in foreign debt, lacks the money to import essentials such as fuel, medicine and cooking gas. Food prices have risen sharply, according to official figures, inflation is now more than 60 percent. Two weeks ago, the previous president, Gotabaya Rajapaksa, fled to Singapore after months of mass protests. Angered by the sluggish economic situation, protesters stormed his official residence and occupied several government buildings.
Since this incident, talks with the IMF, which he began as Prime Minister and Finance Minister in May, have made no progress, Wickremesinghe said. Not long after he was sworn in as the new president, the protest camp was forcibly disbanded. At least a dozen group leaders have been arrested. Blaming the former leader will not solve the problem, said Wickremesinghe, a six-time prime minister. In his speech, he called for the formation of an all-party government.
situation as a result of mismanagement
Wickremesinghe is unpopular because he is backed by lawmakers who are backed by former President Rajapaksa’s powerful family. While he blamed the consequences of the coronavirus pandemic for the crisis, experts also cited economic mismanagement. In 2019, for example, Rajapaksa deprived the country of much-needed revenue through recurring tax cuts, wrote former World Bank economist Kaushik Basu in Sri Lankan newspaper The Times. Then, when the shortage of foreign exchange reserves became a serious problem in early 2021, the government tried to contain it by banning the import of chemical fertilizers.
Farmers should use local organic fertilizers instead. The result is a massive crop failure. Since then, Sri Lanka has had to import food, which exacerbated the foreign exchange shortage. Talal Rafi, member of the expert network at the World Economic Forum, wrote in The Diplomat magazine that many state-owned companies accumulating heavy losses are also a big problem. 86 percent of tax revenue in 2021 will be spent on salaries in the public sector. Add to that the debt of these companies, which will rise to nine percent of Sri Lanka’s economic output by 2020.
The new government under Wickremesinghe now hopes not only for help from the IMF in the near future, but also from China’s top creditor. Critics have warned of China’s “debt trap”. In addition to the airport, highways and railways, the great kingdom of Sri Lanka also financed the Hambantota port and leased it for 99 years. A Chinese spy ship is expected to be there on August 11. India is concerned that Beijing’s port could serve as a military base in the future, Sri Lanka TV channel News First reported.
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