Sri Lanka will seek an International Monetary Fund bailout, President Gotabaya Rajapaksa said on Wednesday, to battle record inflation and unprecedented food and fuel shortages as the country runs out of dollars to finance imports.

The South Asia nation is in the throes of its worst economic crisis since independence from Britain in 1948 with long queues forming outside gas stations and rolling daily blackouts imposed across the country.

"Subsequent to my discussions with the International Monetary Fund, I have decided to work with them," Rajapaksa said in an address to the nation a day after meeting with an IMF delegation in Colombo.

A huge crowd stormed the president's seaside office over runaway prices with the rising cost of food, medicine and other essential goods causing serious hardship for Sri Lanka's 22-million people.

Rajapaksa urged residents to play their part and conserve imported energy to help authorities manage the scarce foreign exchange reserves.

"By limiting the use of fuel and electricity as much as possible, the citizens too can extend their support to the country at this time," Rajapaksa said.

"I hope that you will understand the responsibility lies with you at this challenging time."

He added that IMF help was needed to secure "a new method" to repay external debt and sovereign bonds this year with around $6.9 billion needed this year for debt servicing.

A huge crowd tried to storm the Sri Lankan president's seaside office on Tuesday as anger flared over runaway prices
A huge crowd tried to storm the Sri Lankan president's seaside office on Tuesday as anger flared over runaway prices AFP / Ishara S. KODIKARA

The coronavirus pandemic has hammered the island's tourism sector -- a key foreign exchange earner -- while foreign worker remittances have also declined.

Sri Lanka's foreign reserves, which sat at $7.5 billion when Rajapaksa took office in November 2019, dropped to $2.3 billion at the end of February.

The president said the foreign exchange crisis was the root cause of his country's current issues, adding he was aware of the "difficulties" faced by people queuing for long hours to buy essential goods.

"Today, I am determined to make tough decisions to find solutions to the inconveniences that the people are experiencing," he said.

But former central bank deputy governor W. A. Wijewardena said he expected Rajapaksa to announce a full-fledged IMF funding program to address the balance of payments crisis.

"I think his address didn't go far enough," Wijewardena told AFP. "The market was looking for a mention of IMF funding that would have underwritten the (entire) economy."

Economist Rehana Thowfeek said the government has a lot of work to do to revive the battered economy.

"Good to hear reassurances from the president of the IMF route," she told AFP. "The sooner a formal request is made (to the IMF), the sooner Sri Lanka can begin down the long and hard road ahead."

International rating agencies have downgraded Sri Lanka since the pandemic hit, effectively blocking its access to commercial borrowings.

They have also raised doubts about Colombo's ability to service its external debt amounting to just over $51 billion.