Swathes of Sri Lanka faced prolonged power cuts on Wednesday as a deepening economic crisis roiled markets and buffeted businesses, with the government unable to pay for fuel shipments because of a foreign exchange shortage, an official said.

The country of 22 million people is seeking assistance from the International Monetary Funds (IMF), having slid into its worst economic crisis in decades as a result of badly-timed tax cuts, the impact of the Covid-19 pandemic and historically weak government finances.

Sri Lankan shares fell more than 7%, prompting the Colombo Stock Exchange to halt trading twice.

Foreign exchange reserves have fallen by 70% in the past two years and were down to a paltry $2.31 billion as of February, leaving Sri lanka struggling to import essentials, including food and fuel.

Janaka Ratnayake, Chairman of the Public Utilities Commission of Sri Lanka, said the drawn-out power cuts were partly a result of the government’s inability to pay $52 million for a 37,000 tonne diesel shipment that is awaiting offloading.

“We have no forex to pay,” Ratnayake told Reuters. “That is the reality.”

Power cuts could increase further over the next two days, he said.

Electricity generation has also been hit by low water levels at hydropower facilities during the ongoing dry season, Sri Lanka's power ministry said.

Some water at hydro-power reservoirs is being held back for irrigation ahead of the new cropping reason and domestic use, the ministry said.

To seek a way out of the crisis, Finance Minister Basil Rajapaksa will go to Washington in April for talks with the IMF, sources with knowledge of the ongoing discussions told Reuters.

An IMF assesment published on Friday said Sri Lanka was experiencing a combined balance of payments and sovereign debt crisis, and would need a "comprehensive strategy" to make its debt sustainable.

If Sri lanka secures an IMF programme it would be its 17th financial rescue package from the global lender.

FEWER PEOPLE, FEWER BEERS

Harpo Gooneratne, a restaurateur in Sri Lanka's main city of Colombo, said the diesel shortage made it difficult to operate his 10 restaurants during power cuts despite some of them having their own generators.

“Its crazy,” said Gooneratne, who employs 150 people at his establishments. “This is an unprecedented situation and the worst part is we don't know how long it's going to last.”

The deteriorating electricity situation will hit already struggling business, especially exporters that have locked in orders and limited capacity to absorb cost increases, said Dhananath Fernando, an analyst at Colombo’s Advocata Institute think tank.

“This will further hurt Sri Lanka's growth and threaten foreign exchange earnings that are crucial to improve reserves, repay debt and pay for essential imports,” Fernando said.

Sri Lanka’s economy grew at a slower-than-expected 1.8% in the fourth quarter of the 2021 financial year, taking its full year growth to 3.7%, government data showed on Tuesday.

At his Colombo restaurants, Gooneratne said clientele has shrunk by around 30%.

“Even when people go out they are cautious about their spending,” he said. “The person who earlier had two beers will now only have one.”