COLOMBO, April 9 (Reuters) – Sri Lanka will need around $3 billion in external assistance over the next six months to restore supplies of essentials, including fuel and medicine, to manage a serious economic crisis, its finance minister told Reuters on Saturday. .

The island nation of 22 million has been hit by prolonged power cuts, with shortages of medicine, fuel and other items, bringing angry protesters to the streets and putting President Gotabaya Rajapaksa under a increasing pressure.

“It’s a Herculean task,” Finance Minister Ali Sabry said in his first interview since taking office this week, referring to seeking $3 billion in bridging funding as the country prepares for negotiations. with the International Monetary Fund (IMF) this month.

The South Asian island nation will seek to restructure international sovereign bonds and seek a moratorium on payments, and is confident to negotiate with bondholders for an upcoming $1 billion payment in July.

“The whole effort is not to go for a hard default,” Sabry said. “We understand the consequences of a hard default.”

JP Morgan analysts this week estimated that Sri Lanka’s gross debt service will stand at $7 billion this year, with a current account deficit of around $3 billion.

The country has $12.55 billion in international sovereign bonds outstanding, according to central bank data, and foreign exchange reserves of $1.93 billion at the end of March.

“The first priority is to ensure that we return to the normal route of supplying fuel, gas, medicine…and therefore electricity so that the popular uprising can be addressed,” Sabry said.

‘SENSE OF TRUST’

Anti-government protests have raged across the island for days, with at least one violent one in the country’s commercial capital, Colombo, hurting the lucrative tourism industry that has been ravaged by the COVID-19 pandemic. 19.

“We respect your right to protest, but not violence, because it’s counterproductive,” Sabry said.

“Our tourism, which was returning beautifully in February with 140,000 tourists, has been hit hard since the protests.”

Sabry said he would lead a delegation of Sri Lankan officials to Washington to begin talks with the IMF on April 18 and that financial and legal advisers would be selected within 21 days to help the government restructure its international debt.

“Once we go to them, the first thing is that there’s a sense of confidence across the international monetary community that we mean business,” he said. “We are transparent, we are ready to engage.”

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Sri Lankan authorities will also contact rating agencies, Sabry said, as the country seeks to regain access to international financial markets after being stuck due to multiple rating downgrades since 2020.

Sabry said the government would raise taxes and fuel prices within six months and seek to reform loss-making state enterprises, with the aim of restoring public finances.

These measures were among the main recommendations of an IMF study on the Sri Lankan economy published in early March.

“These are very unpopular measures, but these are things we need to do to get the country out of it,” Sabry said. “But the choice is to do this or to fall in the water permanently?”

‘EVERYONE’S FRIEND’

Sri Lanka will seek another $500 million line of credit from India for fuel, which would be enough for about five weeks’ needs, Sabry said.

The government would also seek support from the Asian Development Bank, the World Bank and bilateral partners, including China, the United States, Britain and Middle Eastern countries.

“We know where we are and the only thing to do is fight back,” Sabry said, looking relaxed in a blue t-shirt and jeans. “We have no choice.”

Discussions are underway with China over a $1.5 billion line of credit, a syndicated loan of up to $1 billion and a request from the Sri Lankan president in January to restructure some of the debt.

“Hopefully we can get some relief and that would help keep the Sri Lankan community and the country afloat until bigger injections come along,” Sabry said.

Beijing and New Delhi have long vied for influence over the strategically located island off the southern tip of India as the country moves closer to China under the powerful Rajapaksa family.

But in recent weeks, as the economic crisis deepened, Sri Lanka has relied heavily on aid from India.

“We are a neutral country. We are friends of all,” said Sabry, a lawyer who previously served as Sri Lanka’s justice minister. “So we think goodwill will help at this point.”

Reporting by Devjyot Ghoshal and Uditha Jayasinghe in Colombo; Editing by Robert Birsel and William Mallard

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