President Ranil Wickremesinghe has instructed his ministries to slash five per cent of their estimated expenditure allocated in this year's Budget as Sri Lanka's Treasury was facing an acute shortage of funds, exacerbating fears that the cash-strapped country's economic crisis could be even worse than previously anticipated.

Sri Lanka is in the midst of its worst economic crisis since its independence from Great Britain in 1948, triggered by a severe paucity of foreign exchange reserves.

In April last year, Sri Lanka declared its international debt default due to the forex crisis.

Speaking during a media briefing on Tuesday, Cabinet spokesperson and Transport Minister Bandula Gunawardena said President Wickremesinghe has informed the cabinet that the Treasury was facing a severe shortage of funds.

Gunawardena explained the income that could have been earned through taxes within the first few months of 2023 was greatly reduced owing to the ongoing economic crisis from last year.

"The economic crisis is worse than what we had anticipated," he said.

“On Monday, the President has instructed that Cabinet to slash 5 per cent from all proposals submitted by the ministries allocated in the 2023 Budget,” he noted. Gunawarde said issues have arisen regarding the payment of government employees’ salaries for the months of January and February, adding that disbursing this month's Samurdhi allowance would also get delayed by a couple of weeks.

President Wickremesinghe, who is also Sri Lanka's finance minister, said last year that a fresh and an out-of-the-box approach was required to provide impetus to the febrile economy.

Sri Lanka, which is trying to secure a USD 2.9 billion bridge loan from the International Monetary Fund (IMF), has been trying to to get financial assurances from its major creditors -- China, Japan and India -- which is the requisite for Colombo to get the bailout package.

Last week, Wickremesinghe said he was hopeful of obtaining the IMF bailout package in the first quarter of this year.

Sri Lanka begun debt restructuring talks with its creditors since September last year as warranted by its agreement with the IMF.

Wickremesinghe earlier said India and Sri Lanka held "successful" talks on debt restructuring and the country will also begin discussions with China.

The Sri Lankan government in May last year appointed international legal and debt advisors for debt restructuring after the country declared its international debt default for the first time in history.

Due to the forex shortage, Sri Lanka was unable to afford key imports, including fuel, fertilisers and medicines, leading to serpentine queues.