As Sri Lanka faces its worst financial crisis in more than seven decades, an International Monetary Fund (IMF) team met Sri Lanka’s president on Wednesday for talks on a bailout package, including restructuring debt of about $29 billion. It was the second such visit in three months even as the country scrambles to lock down a staff-level pact for a possible $3 billion programme. The main sticking point is how to find a sustainable track for Sri Lanka’s unwieldy debt, which stood at 114% of GDP at the end of last year, Reuters reported.

Sri Lanka has $9.6 billion in bilateral debt and its private credit, which includes international sovereign bonds, stands at $19.8 billion, finance ministry data show. Japan and China are the largest holders of bilateral debt, with the latter accounting for about $3.5 billion. Overall, when commercial debt is added, China holds about a fifth of Sri Lanka’s debt portfolio.

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The population of 22 million has been struggling for months because of soaring inflation, economic contraction and a severe shortage of essential items of food, fuel and medicine caused by a record slump in foreign reserves.

The combined impact of the COVID-19 pandemic and economic mismanagement have led to the most severe financial crisis since the country’s independence in 1948. In July, then-president Gotabaya Rajapaksa fled the country and resigned after a mass uprising triggered by what many Sri Lankans saw as his mishandling of the crisis.

President Ranil Wickremesinghe, who is also the finance minister, plans to ask Japan to lead talks on bilateral debt restructuring after Sri Lanka secures IMF support.

(With inputs from agencies)

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