Sri Lanka’s prime minister has proposed talks with protesters calling on the government to step down to deal with the economic crisis, as the opposition threatens to introduce a no-confidence motion in parliament.

The island nation of 22 million is in the throes of its worst financial crisis since independence in 1948, with foreign currency shortages hampering imports of fuel and medicines and power outages for hours a day.

Thousands of people took to the streets, many of them in a sit-in in the commercial capital Colombo, to denounce the government led by President Gotabaya Rajapaksa and his older brother, Prime Minister Mahinda Rajapaksa.

“The prime minister is ready to begin talks with protesters in Galle Face Green,” his office said in a statement Wednesday, referring to a protest site that has become a focus of discontent.

“If protesters are ready to discuss their proposals to address the challenges the country is currently facing, then the Prime Minister is ready to invite their representatives to talks,” the office said.

Some protesters in the tented camp, which has grown in recent days with food stalls, medical facilities and phone charging stations, said this week that they would only leave if the Rajapaksa stepped down.

Protesters chanting slogans against Sri Lankan President Gotabaya Rajapaksa near the presidential secretariat in Colombo, Sri Lanka [Dinuka Liyanawatte/Reuters]

Adding to the uncertainty, the main opposition Samagi Jana Balawegaya (SJB) coalition said it would give the president and prime minister a week to step down before moving a no-confidence motion in parliament.

“Political stability is a prerequisite for IMF negotiations. The people have no confidence in this government,” Eran Wickramaratne, the SJB’s national organizer, told Reuters.

“The president and the prime minister must resign,” Wickramaratne said, adding that the opposition had the necessary numbers in parliament.

Despite more than two dozen lawmakers leaving the ruling coalition and declaring independence last week, the government says it has a majority in the 225-member parliament, which is scheduled to meet next week.

INTERACTIVE_SRI_LANKA_FOREIGN debt
(Al Jazeera)

Sri Lanka will start negotiations with the International Monetary Fund (IMF) next week on a loan scheme as the crisis worsens.

On Wednesday, several rating agencies downgraded Sri Lanka’s sovereign rating, citing the country’s economic crisis and rising external funding pressures.

U.S. ratings agency Fitch also downgraded Sri Lanka’s foreign exchange rating, saying the move reflected its view that the sovereign default process had begun.

“The debt restructuring process in Sri Lanka can be complex and could take months to complete,” S&P Global said in a statement.

Earlier on Wednesday, the World Bank revised its growth forecast for Sri Lanka to 2.4 percent from 2.1 percent earlier, but warned that the economic outlook remained uncertain.

Sri Lankan Prime Minister Mahinda Rajapaksa
Sri Lankan Prime Minister Mahinda Rajapaksa refuses to budge, says ruling coalition will stay in power as opposition rejects call for coalition government [File: Dinuka Liyanawatte/Reuters]

On Tuesday, the governor of Sri Lanka’s central bank said he would suspend foreign debt payments and divert dwindling foreign exchange reserves to import essential goods.

The IMF said it was assessing the specific impact of Tuesday’s announcement, but supported the country’s plan to engage with creditors.

“We assess that Sri Lanka’s debt is unsustainable, and the country’s fiscal efforts and macroeconomic policy adjustments alone cannot restore debt sustainability,” Masahiro Nozaki, head of the IMF mission to Sri Lanka, told Reuters in a statement on Wednesday. society.

“We therefore welcome the Sri Lankan authorities’ plan to engage in a cooperative dialogue with their creditors.”

Analysts at JPMorgan highlighted political instability as a key risk as governments scramble to secure external aid.

The crisis is rooted in mismanagement of public finances, which critics say has been exacerbated by the government’s tax cuts before the COVID-19 pandemic.