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Sri Lanka's President Gotabaya Rajapaksa and the entire cabinet will resign to make way for a unity government, the prime minister's office said on Monday, after tens of thousands of protesters stormed the official residences of both men.

After Saturday's sweeping protests in the wake of a debilitating economic crisis, the speaker of parliament said Rajapaksa would resign on Wednesday. However, there has been no direct word from Rajapaksa on his plans.

Prime Minister Ranil Wickremesinghe has said he would also step down to allow an all-party interim government to take over. Wickremesinghe's office said Rajapaksa had confirmed his resignation plans to the prime minister, adding that the entire cabinet would resign once a deal was reached to form an all-party government.

The political instability could hurt the country's negotiations with the International Monetary Fund for a bailout package, the central bank governor told Reuters in an interview. 

Governor P. Nandalal Weerasinghe signalled he would stay on in the job although he had said in May he could resign if there was no political stability in the island nation of 22 million.

Asked if he would continue to steer the central bank, Weerasinghe said: "I have the responsibility once I have been appointed to serve for (a) six-year term."

Leaders of the protest movement have said crowds would keep occupying the residences of the president and prime minister in Colombo until they finally quit office. Over the weekend at the president's house, protesters jumped into the swimming pool, lounged on a four-poster bed, jostled for turns on a treadmill and tried out the sofas. 

Colombo was calm on Monday as hundreds of people strolled into the president's secretariat and residence and toured the colonial-era buildings. Police made no attempt to stop anyone.

"We are not going anywhere till this president leaves and we have a government that is acceptable to the people," said Jude Hansana, 31, who has been at a protest site outside the residence since early April.

Another protester, Dushantha Gunasinghe, said he had travelled to Colombo from a town 130 km (80 miles) away, walking part of the way because of the fuel crunch. He said he finally reached on Monday morning.

"I'm so exhausted I can barely speak," said the 28-year-old as he sat on a plastic chair outside the president's office. "I came alone all this way because I believe we need to see this through. This government needs to go home and we need better leaders."

'TOTAL CHAOS'

Rajapaksa and Wickremesinghe were not in their residences when the protesters surged into the buildings and have not been seen in public since Friday. Rajapaksa's whereabouts were not known but Wickremesinghe's media team said in a statement he held a meeting with cabinet ministers at the prime minister's office on Monday morning.

Wickremesinghe's private home in an affluent Colombo suburb was set on fire on Saturday, and three suspects have been arrested, police have said.

Constitutional experts say once the president and prime minister formally resign, the next step would be for the speaker to be appointed as acting president and for parliament to vote for a new president within 30 days to complete Rajapaksa's term that was to end in 2024.

Ordinary Sri Lankans have mainly blamed Rajapaksa for the collapse of the tourism-dependent economy, which was hammered badly by the COVID-19 pandemic and a ban on chemical fertilisers that damaged farm output. The ban was later reversed.

Government finances were crippled by mounting debt and lavish tax breaks given by the Rajapaksa regime. Foreign exchange reserves were quickly depleted as oil prices rose.

The country barely has any dollars left to import fuel, which has been severely rationed, and long lines have formed in front of shops selling cooking gas. Headline inflation in the country of 22 million hit 54.6% last month, and the central bank has warned that it could rise to 70% in the coming months.

The political crisis sent Sri Lanka's government bonds, which are already in default, to new lows. The country's 2025 bond fell as much as 2.25 cents on the dollar while most were now under 30 cents, or 70% below their face value.

Lutz Roehmeyer of Capitulum Asset Management, which holds Sri Lanka dollar bonds, said an IMF deal could happen this year or next, but for bondholders, a restructuring was likely only in 2024 or 2025, not next year.

"It's total chaos," Roehmeyer said. "Expectations are that the transition of power will be more chaotic and it will take longer to strike a deal." (Reuters)