Sri Lanka could have averted the current economic turmoil if it had gone to the IMF for a bailout sooner, the debt-ridden country’s central bank governor said, acknowledging that the delay in seeking outside help was a mistake. Sri Lanka is currently facing its worst economic crisis since independence from Britain in 1948.
The economic crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and fuel across the island nation.
“If we had taken the decision to go to the IMF earlier, if we started the debt resettlement process one year before, we could have managed the situation without this kind of suffering in this country,”
P. Nandalal Weerasinghe, governor of the Central Bank of Sri Lanka, told the BBC. The government has said it needs $5 billion this year in support from the international community, including the IMF.
Sri Lanka defaulted on its foreign debt for the first time in its history last month.
A team from the IMF is will arrive in Colombo for talks on Monday and Weerasinghe will be a key participant.
A complication in the current IMF negotiations is Sri Lanka’s substantial borrowing from China, which Weerasinghe said accounts for 15 per cent of the country’s total external debt. The fund has a policy of not bailing out countries unless all its other creditors have first agreed to write down their loans.
“I’m sure China as a good friend of Sri Lanka [will] offer similar relief that will be offered by other creditors as well,” said Weerasinghe.
There is uncertainty about whether Weerasinghe, who replaced the previous governor Ajith Nivard Cabraal in April, will be reappointed for a full six-year term at the end of this month.
Former Sri Lanka central bank staff have written an open letter to the embattled President Gotabaya Rajapaksa urging him to keep Weerasinghe in the post.
“If anyone is contemplating removing him from his position as the governor of the Central Bank of Sri Lanka, we see it as a highly unpatriotic move with entirely ulterior motives,” they wrote.
The nearly bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, announced in April that it is suspending nearly $7 billion foreign debt repayment due for this year out of about $25 billion. Sri Lanka’s total foreign debt stands at $51 billion.
