Sri Lanka says IMF to consider request for rapid financial aid

The International Monetary Fund will consider providing quick financial assistance to debt-burdened Sri Lanka following representations by India, Sri Lanka’s finance ministry said on Tuesday.

A delegation headed by Sri Lanka’s Finance Minister Ali Sabry kicked off formal talks with the IMF in Washington on Monday for a programme the government hopes will help top up its reserves and attract bridge financing to pay for essential imports of fuel, food and medicines.

Shamir Zavahir, an aide to Sabry, said on Twitter that Sri Lanka asked for a loan under the rapid financial instrument (RFI) window, meant for countries needing urgent balance-of-payment support. But the global lender was initially not inclined to grant the request, he said.

“The IMF has subsequently informed Minister Sabry that India had also made representations on behalf of Sri Lanka for an RFI,” Sri Lanka’s finance ministry said in a statement.

“It had been communicated that IMF will consider the special request made despite it being outside of the standard circumstances for the issuance of an RFI.”

Sri Lanka’s sovereign dollar-denominated bonds came under pressure again on Tuesday, with longer-dated issues falling as much as 1.4 cents in the dollar to trade at deeply distressed levels of just over 40 cents, Tradeweb data showed.

The country’s devastating financial crisis has come as the effects of COVID-19 exacerbated mismanaged government finances and as rising prices of fuel sapped foreign reserves. Fuel, power, food and medicines have been running low for weeks.

Street protests have erupted against President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, in the island nation of 22 million people.

Sri Lanka is seeking $3 billion in the coming months from multiple sources including the IMF, the World Bank and India to stave off the crisis, Sabry told Reuters earlier this month.

Both India and China have already extended billions of dollars in financial support to Sri Lanka. Sabry met his Indian counterpart Nirmala Sitharaman on the sidelines of the IMF deliberations, and both sides said they agreed to deepen their cooperation.

“India will fully support the deliberations of Sri Lanka with the IMF, especially on the special request made for expediting an extended fund facility,” Sabry’s office said, citing his meeting with Sitharaman.

Sources have told Reuters India would keep helping out its neighbour as it tries to regain influence lost to China in recent years. Beijing is one of Sri Lanka’s biggest lenders and has also built ports and roads there.

Last week, Sri Lanka’s central bank said it was suspending repayment on some of its foreign debt pending a restructure.

In the commercial capital Colombo, protests demanding the ouster of the Rajapaksas have dragged on for more than a week.

In parliament on Tuesday, the prime minister reiterated a call for a unity government that the opposition has rejected.

In a bid to quell the protests and demands for their resignation, the Rajapaksa brothers have also offered to reduce the executive powers of the president by amending the constitution.

“Together with the support of the president, we will move towards broad constitutional reforms,” said Mahinda Rajapaksa, a former president himself. “We request for support from the public, the opposition and all other stakeholders.”

Meanwhile India and Sri lanka have resumed talks on linking their electricity grids, officials told Reuters on Tuesday, a step that could aid New Delhi’s goal of reducing China’s influence on the island nation, now grappling with a severe economic crisis.

There was no immediate prospect that power cuts brought by the crisis could be eased by the talks, which are a preliminary effort on a multi-year project both sides have explored before.

India has extended assistance running into billions of dollars to its southern neighbour to fight the crisis, brought on by a steep drop in foreign exchange reserves that stalled imports of essentials such as fuel, so disrupting power supply.

“It is at very initial stages of discussion,” Wasantha Perera, secretary of Sri lanka’s power ministry, told Reuters, but gave no further details.

Protests and political turmoil brought on by rocketing inflation, a currency devaluation and shortages have spurred the nation of 22 million to begin talks with the International Monetary Fund (IMF) for a loan programme, also backed by India.