COLOMBO, May 24 (Reuters) – Sri Lanka’s new Prime Minister Ranil Wickremesinghe said on Tuesday he would present an interim budget within six weeks, slashing infrastructure projects to redirect funds to a relief program of two years for the island nation in crisis. .

Wickremesinghe, who took office two weeks ago, warned inflation would rise as the government tackles the crisis and there could be more protests in the streets.

He said he hoped the unrest did not spiral out of control, adding that funds would be made available to help the most vulnerable of the country’s 22 million people.

“Looking at the hard days ahead, there must be protests. It’s natural when people are suffering, they have to protest,” Wickremesinghe said in an interview at the colonial-era prime minister’s office in the commercial capital. Colombo.

“But we want to make sure it doesn’t destabilize the political system.

“With the interim budget, it’s just a matter of cutting spending, cutting it to the bone where possible and shifting it to welfare.”

The country off the southern tip of India is reeling from its worst economic crisis since its independence in 1948, as a shortage of foreign currency has drastically reduced imports of essential goods, including fuel and medicine, triggering months of unprecedented protests.

Much of the public anger has been directed at President Gotabaya Rajapaksa and his family, whom protesters accuse of mismanaging the economy.

The roots of the current crisis also lie in the COVID-19 pandemic, which has devastated the country’s lucrative tourism industry and undermined remittances from foreign workers, and the populist tax cuts enacted by the Rajapaksa administration which drained government revenue.

“We have no rupee income, and now we have to print an extra (one) trillion rupees,” Wickremesinghe said, warning that annual inflation could exceed 40% in the coming months, putting further pressure on Sri Lankan households already struggling with high prices.

Inflation hit a record 33.8 percent year-on-year in April, from 21.5 percent in March, government data showed on Monday.

Earlier on Tuesday, the government announced long-standing petrol and diesel price increases to help clean up public finances. Read more

Economists said the increases are necessary but will exacerbate inflation. They also raised concerns that money printing would add to inflationary pressures. Read more

inflated SECTOR

To find money to support relief measures, Wickremesinghe said his administration was undertaking a review of possible spending cuts in the country’s bloated government sector.

“For example, the Ministry of Health, we just can’t reduce its spending. The Ministry of Education, it’s a limited reduction, but there are many other ministries where we can reduce,” said- he declared.

A concrete plan to get public finances back on track is expected to be part of Sri Lanka’s ongoing negotiations with the International Monetary Fund (IMF) for a loan package.

A new finance minister to lead the talks will be appointed by Wednesday, Wickremesinghe said, as a new cabinet of ministers takes shape after President Rajapaksa’s older brother Mahinda resigned as prime minister in Beginning of the month.

The resignation came hours after clashes between government supporters and protesters in Colombo sparked a nationwide bout of violence that left nine dead and around 300 injured.

On negotiations with the IMF, Wickremesinghe said he hoped for a “sustainable loan package” from the international lender, while undertaking structural reforms that would attract new investment to the country.

Worried about food shortages from August, in part because of a disastrous decision last year to stop importing chemical fertilizers that slashed productivity, Sri Lanka is also banking on foreign aid from allies and multilateral agencies to bolster commodity supplies, Wickremesinghe said.

“We will have to seek help from our friends abroad to make sure there is enough food,” he said, “we will need more rice.”

India, which has long jostled with China for influence on the strategically located island, has been a bulwark of aid for Sri Lanka in recent months, providing food, fuel, medicine and financial support.

Wickremesinghe said he would likely meet China’s ambassador to Sri Lanka next week, seeking fertilizer and medicine in Beijing.

“We would like to see what is available,” he said, “We know we need fertilizer. I would focus on that.”

Reporting by Uditha Jayasinghe and Devjyot Ghoshal in COLOMBO; Editing by Raju Gopalakrishnan and Nick Zieminski

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