Sri Lanka PM says talks with IMF difficult due to bankruptcy

FILE- Sri Lanka's new prime minister Ranil Wickremesinghe gestures during an interview with The Associated Press in Colombo, Sri Lanka, June 11, 2022. Sri Lanka’s negotiations with the International Monetary Fund are more complex and difficult than in the past because it is a bankrupt nation, Wickremesinghe said Tuesday. (AP Photo/Eranga Jayawardena, File)

A motorist pushes his motorcycle along with a cyclist amid fuel shortage in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

Auto rickshaws queue up outside a fuels station amid fuel shortage in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

Auto rickshaw drivers wait to buy fuel in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

Auto rickshaw drivers wait to buy fuel in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

Bicycles brought to be repaired are seen outside a workshop amid fuel shortage in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

People try to get board a crowded bus amid fuel shortage in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

Bicycles given to be repaired are seen outside a workshop amid fuel shortage in Colombo, Sri Lanka, Tuesday, July 5, 2022. Sri Lanka's ongoing negotiations with the International Monetary Fund have been complex and difficult than the instances before because it has entered talks as a bankrupt nation, the country's prime minister said Tuesday. (AP Photo/Eranga Jayawardena)

COLOMBO, Sri Lanka (AP) — Sri Lanka’s negotiations with the International Monetary Fund on a bailout are more complex and difficult than before because it is a bankrupt nation, the country’s prime minister said Tuesday.

Prime Minister Ranil Wickremesinghe told lawmakers that recent discussions with a visiting IMF mission were fruitful but not as straightforward as in the past.

The South Asian island nation is in its worst economic crisis in memory. Its people are suffering acute shortages of essentials, food, fuel, cooking gas and medicines, obliged to wait in long lines to buy limited supplies. The government has shut schools and asked employees other than those in essential services to work from home.

“Our country has held talks with the IMF on many occasions before. But this time the situation is different from all those previous occasions. In the past, we have held discussions as a developing country," Wickremesinghe said.

“But now the situation is different. We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation,” he said in explaining a roadmap for an economic recovery.

Wickremesinghe said earlier that a preliminary agreement on a bailout has been submitted to the IMF's board of directors for approval. “But due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to them separately. Only when they are satisfied with that plan can we reach an agreement at the staff level. This is not a straight-forward process,” he said.

He said Sri Lanka's financial legal advisors are working on a debt sustainability report to be submitted in August.

Discussions are underway with India, Japan and China to form an aid consortium once a staff-level agreement with the IMF is reached, Wickremesinghe said.

Sri Lanka suspended repayment on foreign debts worth about $7 billion that were due this year because its foreign exchange levels fell to record lows. The country's total foreign debt is $51 billion, $28 billion of which must be repaid by 2027, an average repayment of about $5 billion a year.

Frustrated people have been holding street protests for months and often scuffle among themselves and with police at fuel stations.

Wickremesinghe said the Central Bank is forecasting an economic contraction of 4% to 5% this year. The IMF estimates Sri Lanka's economy will shrink 6% to 7%.

Sri Lanka's economy has been gutted by the pandemic, which compounded longstanding problems of economic mismanagement. It's GDP fell to $76.2 billion in 2021, down from $94.4 billion in 2018 and won't recover to the level it was at in 2018 until 2026, Wickremesinghe said. He said one government target was to achieve minus 1% growth by the end of next year.