Ranil Wickremesinghe, newly appointed prime minister, arrives at a Buddhist temple after his swearing-in ceremony, amid the country's economic crisis, in Colombo, Sri Lanka, May 12, 2022.
Ranil Wickremesinghe, newly appointed prime minister, arrives at a Buddhist temple after his swearing-in ceremony, amid the country's economic crisis, in Colombo, Sri Lanka, May 12, 2022. Reuters / DINUKA LIYANAWATTE

Sri Lanka seeks to secure around $5 billion in funding this year to cover repayments for fuel imports and other items bought through credit lines, and another $1 billion to bolster its foreign reserves, the prime minister's office said on Thursday.

The island nation is grappling with its worst financial crisis in over seven decades with a severe foreign exchange shortage that has left it struggling to pay for essential imports including food, fuel, fertilisers and medicines.

Sri Lanka's foreign exchange reserves stood at $1.81 billion in April.

Prime Minister Ranil Wickremesinghe, who took office last month after mass protests forced the resignation of his predecessor, has raised taxes to shore up government revenues and plans to cut expenditure sharply in an interim budget to be presented within weeks.

Sri Lanka is also negotiating a bailout package with the International Monetary Fund, which could potentially enable it to borrow at least $3 billion via the lender's extended fund facility.

"He elaborated that discussions with the IMF are proceeding and he was hopeful that negotiations would conclude by the end of the month," Wickremesinghe's office said in a statement, referring to a discussion between the prime minister and local chambers of commerce.

Wickremesinghe said that any bridging finance would depend on Sri Lanka reaching an agreement with the IMF, the statement added.

So far, Sri Lanka has received two credit lines worth $1.5 billion from India for fuel and essential imports. The neighbours are also in talks for another $500 million credit line to fund fuel imports.

Sri Lanka is also asking other countries for help, including Japan, which has long-standing commercial ties with the island nation. However, relations with Tokyo, which has also been a key lender to Sri Lanka, cooled after Sri Lanka in 2020 cancelled a $1.5 billion light railway project that was to be largely funded by Japan.

"He (Wickremesinghe) added that relations with Japan had broken down, and it would take a while to repair those relations and regain their confidence," the statement from the prime minister's office said.