Sri Lanka hopeful of deals to overcome financial crisis
Sri Lanka continues working to move past its worst financial crisis in decades through talks with the International Monetary Fund (IMF) about a bailout agreement. The country also expects a debt relief deal with the People’s Republic of China (PRC), its largest creditor.
Sri Lanka had U.S. $7.4 billion in outstanding Chinese debt by the end of 2021, accounting for nearly 20% of the country’s external debt, according to a November 2022 report by the China Africa Research Initiative (CARI), based at the Johns Hopkins University School of Advanced International Studies in Washington, D.C. Much of Sri Lanka’s debt to the PRC involves loans to support Beijing’s One Belt, One Road infrastructure scheme.
“China is Sri Lanka’s largest bilateral creditor and has a significant role to play within the sovereign debt restructuring process that the crisis-stricken island nation is currently going through,” stated the CARI briefing paper, titled “Evolution of Chinese Lending to Sri Lanka Since the mid-2000s — Separating Myth from Reality.”
Sri Lanka owes more than U.S. $47.6 billion in total foreign debt, according to a September 2022 quarterly report from the Central Bank of Sri Lanka, which is more than half of the nation’s gross domestic product.
Sri Lankan President Ranil Wickremesinghe told lawmakers that despite signs of an improving economy, the country still lacks the foreign exchange reserves needed for imports, Reuters reported in early March 2023. He said he expected the PRC’s financing assurances to tip the scales for approval of a U.S. $2.9 billion loan from the IMF so Sri Lanka can meet its financial obligations. Sri Lanka’s government considered securing PRC support a critical step for an IMF deal to move forward.
“Now we have done our part, and I expect the IMF will do its share by the end of this month, by the third or fourth week,” Wickremesinghe said in early March, noting that Sri Lanka had received a letter with the necessary assurances from the Export-Import (EXIM) Bank of China. (Pictured: Sri Lankan President Ranil Wickremesinghe, left, arrives at Parliament in Colombo in February 2023.)
The letter said EXIM would expedite debt talks in the coming months, in addition to the two-year debt extension it granted in January 2023. India, Sri Lanka’s other major lender, has already told the IMF it would support Sri Lanka with debt relief and financing, Reuters reported.
“Sri Lanka has worked hard and spent months to fulfill requirements for the IMF program, at certain times the president engaged at [a] personal level to get support,” Sri Lankan Cabinet spokesperson Bandula Gunawardena said at a news briefing, according to Reuters. “Without the IMF program, Sri Lanka cannot turn around its economy.”
The financial crisis has upended countless aspects of government and daily life, delaying elections and spurring tax increases. Sri Lanka’s election commission said it didn’t have money for printers, police or ballots that were due March 9, 2023, according to Bloomberg. Opponents have accused Wickremesinghe of attempting to block the polls, and there have been protests over the election delays. “A government can continue to use the excuse of being bankrupt to postpone the elections forever, then keep the country bankrupt forever to remain in power,” Charith Janappriya, a 32-year-old Colombo resident, told the Hong Kong-based South China Morning Post newspaper in March 2023.
Energy costs also have risen as the crisis has led to shortages in fuel, cooking gas, food and medicine, The Associated Press (AP) reported.
Wickremesinghe said the unpopular decisions were necessary to salvage Sri Lanka’s economy. “Inflation rises during an economic crisis. The price of goods increases. Employment is at risk. Businesses collapse. Taxes increase. It is difficult for all sections of the society to survive,” he said, according to AP. “However, if we endure this hardship for another five to six months, we can reach a solution.”
IMAGE CREDIT: THE ASSOCIATED PRESS