Sri Lanka's Central Bank Head Regrets Not Seeking IMF Help Sooner as Country is Running Out of Fuel

India has delivered several shipments of petrol and diesel to Sri Lanka under a $500 million credit line, with the last unit being delivered this week. Colombo is awaiting official confirmation from New Delhi on another $500 mln credit line for fuel imports, the Energy Minister said on Thursday.

Sri Lanka’s Central Bank Governor P. Nandalal Weerasinghe has expressed regret over his government’s decision to not approach the International Monetary Fund (IMF) for a bailout package sooner, describing it as a "mistake."

The comments come amid a severe fuel crisis in the country caused by the government’s inability to pay for food and fuel imports owing to a shortage of foreign currency reserves.

The government said on Thursday that the existing fuel stocks would last only five more days.

"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," Weerasinghe told the British Broadcasting Corporation (BBC) in an interview on Thursday.

The Sri Lankan government, which is facing its worst economic crisis since independence in 1948, announced in April that it would suspend all its external debt payments.

At the same time, Colombo began parallel negotiations with the IMF, with a delegation led by Finance Minister Ali Sabry to hold negotiations with the World Bank and the IMF in April.

Last month, the IMF also conducted a virtual mission to Sri Lanka between 9 and 24 May in view of the fuel, food and power shortages caused by the “severe balance of payments” problems.

“The team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward. The discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability; and structural reforms to enhance growth and strengthen governance,” the IMF said in a press release.

An IMF delegation is due to visit Sri Lanka on Monday.

One of the sticking points between the IMF and the Sri Lankan government is the restructuring of external debt that Colombo owes to Beijing.

The IMF has a policy of not agreeing to a bailout package unless all the lenders write down their loans.

The central bank governor said that Chinese debt accounts for 15 percent of Colombo’s overall foreign borrowings. Sri Lanka has asked China to renegotiate the terms of the debt, in line with the IMF’s demand.

"I am sure China as a good friend of Sri Lanka will offer similar relief that will be offered by other creditors as well," Weerasinghe said.

Chinese Ambassador to Sri Lanka Qi Zhenhong met Prime Minister Ranil Wickremesinghe on 14 June and assured Beijing’s “continual and concrete support including grant, trade and investment”, as per the Chinese embassy.

“Chinese banks are also ready to negotiate with Sri Lanka to properly handle matured debts," the embassy said.