- Stability of country’s political establishment in question
- Sri Lanka largely reliant on India, China for bridge financing
Sri Lanka faces complications and delays in bailout talks with the International Monetary Fund amid questions over political stability after the prime minister resigned, Citigroup Global Markets said.
Even after the brother of President Gotabaya Rajapaksa resigned as prime minister on Monday, protesters targeted the homes and properties of ruling-party lawmakers, reports said. The demonstrations, which have beset the capital Colombo for weeks, come as inflation quickened to close to 30% in April amid a sharp drop in the rupee.
The resulting economic contraction and widespread hardship “would raise questions about the stability of the current political establishment and its ability both to negotiate an IMF program as well as implement a tough economic program,” Citigroup analysts led by Johanna Chua wrote in a note to clients.
The resignation of the prime minister could be seen as a way to appease political factions in order to negotiate a program with the IMF and perhaps an attempt to appease public discontent, Cit said. But with President Gotabaya still in power, a “stable political equilibrium may prove elusive.”
The social unrest also risks putting off tourists, income from whom is key to shore up foreign-exchange reserves. The government imposed a nationwide curfew on Monday and called in the army after government supporters clashed with President Rajapaksa’s opponents who have camped out in downtown Colombo for weeks to demand his resignation.
Dollar Bonds Fall, Nationwide Curfew Extended: Sri Lanka Update
Sri Lanka has turned largely to India or China to provide up to $4 billion in bridge financing and the extent and duration of this financing is unclear, Citi said, adding that its dollar bonds are likely to continue to weaken with prices now close to Citi’s recovery value analysis.
The 5.875% sovereign dollar bond due July 25 was indicated 0.12 cents lower at 45.66 cents on the dollar, after dropping 0.75 cents Monday, Bloomberg-compiled prices show.