Sri Lanka needs $5 billion, help from China for essentials

Ranil Wickremesinghe, newly appointed prime minister, arrives at a Buddhist temple after being sworn in during the country’s economic crisis, in Colombo, Sri Lanka, May 12, 2022. REUTERS/Dinuka Liyanawatte

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COLOMBO, June 7 (Reuters) – Sri Lanka needs $5 billion over the next six months to ensure basic living standards, and is renegotiating the terms of a $1.5 billion yuan swap with China to secure essential imports to finance, the main said the minister on Tuesday.

The island’s worst economic crisis in seven decades led to a shortage of foreign exchange, halting imports of essential items such as fuel, medicines and fertilizers, leading to devaluation, street protests and a change of government.

To overcome the unrest, Sri Lanka will need about $3.3 billion for fuel imports, $900 million for food, $250 million for cooking gas and $600 million more for fertilizer this year, Prime Minister Ranil Wickremesinghe told parliament.

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The central bank estimates the economy will shrink by 3.5% in 2022, Wickremesinghe said, but added it was confident growth could return with a strong reform package, debt restructuring and international support.

“Just creating economic stability is not enough, we need to restructure the whole economy,” said Wickremesinghe, who is working on an interim budget to balance battered public finances.

“We need to achieve economic stability by the end of 2023.”

The 22 million Indian Ocean country is negotiating a loan package of about $3 billion from the International Monetary Fund, in addition to aid from countries like China, India and Japan.

On Tuesday, the cabinet approved a $55 million line of credit from India’s Exim Bank to fund 150,000 tons of urea imports — a critical requirement as supplies run out during the current harvest season.

“Farmers don’t have to worry about not having input for the next season,” cabinet spokesman Bandula Gunawardena told reporters, estimating 150,000 tons of urea would be needed for the next crop cycle.

While food inflation of 57% is partly driven by higher global commodity prices, a depreciated currency and low domestic production, it is estimated that yields from the next crop will be halved due to the lack of fertilizer.

The United Nations will launch a global public appeal for Sri Lanka on Wednesday, pledging $48 million for food, agriculture and health, Wickremesinghe said.

Sri Lanka was also renegotiating with China the terms of a $1.5 billion yuan swap agreed last year.

The original terms stipulated that the exchange could only be used if Sri Lanka held reserves equivalent to three months of imports.

But with reserves well below that level, Sri Lanka should ask China to reconsider the requirement and allow the swap, Wickremesinghe said.

Wickremesinghe, who is also finance minister, will unveil an interim budget next month that he says aims to cut government spending and increase annual social spending to $500 million from about $350 million.

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Reporting by Uditha Jayasinghe; Written by Devjyot Ghoshal; Editing by Clarence Fernandez

Our Standards: The Thomson Reuters Trust Principles.

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