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The Central Bank of Sri Lanka has urged China and India to agree to restructure Sri Lanka’s debt to them.
Sri Lanka, which is affected by the economic crisis, is struggling to repay the loans taken from other countries. Subsequently, the International Monetary Fund agreed to provide a loan of US$ 2.9 billion to Sri Lanka.
However, if its debt is to be disbursed, the countries that have lent money to Sri Lanka must agree to restructure their debt. Due to this, there is a delay in getting the loan from International Monetary Fund to Sri Lanka.
The Governor of the Central Bank of Sri Lanka told BBC Newsnight that he wanted all parties to act quickly.
“The faster they give us financial guarantee, the better it is for both the lender and the borrower,” said B. Nandalal Weerasinghe.
“That will enable us to start repaying their loans. We don’t want to remain in this position for long without fulfilling our obligations. It is not good for the country and us. This is not good for investors’ confidence in Sri Lanka,” he said.
Food prices in Sri Lanka were 65% higher last month than last year, despite the country’s inflation easing slightly from last year.
The World Food Programme, an arm of the United Nations, says that 8 million people in Sri Lanka are food insecure and hungry, especially in rural areas. A figure of 80 lakhs is more than one-third of the country’s total population.
The economic situation in the country gave rise to great protests last year. Because of this, the then President Gotabaya Rajapaksa left the country last July.
The World Bank estimates that Sri Lanka’s economy will shrink by 9.2% in 2022 and another 4.2% this year.
China’s debt to Sri Lanka is USD 7 billion and India’s debt is about USD 1 billion.
The Sri Lankan government had initially hoped to agree a new payment plan with China and India by the end of 2022.
Weerasinghe said that there are chances of reaching agreements in this regard by the end of January, “It all depends on the other party, and those who have given us loans should make the decisions.”
He also said that Sri Lanka has now provided them with all the information they need regarding the country’s debts.
Independent analysts say China is concerned about the impact of debt restructuring for Sri Lanka on the back of China’s lending to developing countries under the Belt and Road Initiative (which includes roads, railways, ports, mining and energy).
image source, JACK GARLAND
Meanwhile, India is said to be wary of getting lower terms on debt restructuring from its regional rival China.
US ambassador to Sri Lanka, Julie Chung, says China, the biggest creditor country, bears the greatest responsibility.
“We hope China should not delay because Sri Lanka has no time to delay. They need these guarantees immediately,” he told BBC Newsnight.
“For the benefit of the Sri Lankan people, we certainly hope that China will not do any harm while Sri Lanka continues to achieve this IMF agreement,” Julie Chung said.
But even if India and China agree to restructure debt with Sri Lanka, there is another potential problem through private creditors, which account for 40% of the country’s external debt stock.
image source, JACK GARLAND
After Argentina plunged into economic crisis in 2001, some US funds took the country’s government to court in the US to demand full repayment of the bonds they had bought on the open market, rather than agree to restructure them.
On 8 January a large group of international economists called for the “cancellation” of Sri Lanka’s bonds. They also said, “In order to come out of the current situation, Sri Lanka’s lenders must ensure adequate debt cancellation.”
Responding to a question about private borrowers of Sri Lankan bonds, Weerasinghe said, “We are engaged in good faith negotiations with private lenders. We see that they are confident and willing to engage with us.”
The governor said he expected IMF funds to be disbursed to Sri Lanka “within four to six weeks” once bilateral lenders agreed to a deal.
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