CB governor pleads China and India to reduce Sri Lanka’s debts
The Central Bank of Sri Lanka (CBSL) bank has urged China and India to agree to a write-down (haircut) of their loans as soon as possible.
Governor of the Bank Nandalal Weerasinghe is now in a haste to convince these two donor countries for debt restructuring process after his statements on receiving the imf board approval for US$.29 billion bail out loan on December 2022 or January 2023 became empty words and boomeranged on CB credibility.
Asked about Sri Lanka’s private bondholders, Weerasinghe said: “We engage with private creditors in good faith negotiations. And what we are seeing is that they are very positive and they are willing to engage with us.”
The governor said he expected that once agreement from bilateral creditors has been agreed the IMF funds could be distributed to Sri Lanka within “four to six weeks”.
Dollar-strapped Sri Lanka is racing against time to secure a diplomatic breakthrough with China, Japan and India, the bilateral lenders who have yet to come up with a debt restructuring blueprint to unlock IMF Extended Fund Facility.
But the International Monetary Fund will not release the cash until China and India first agree to reduce Sri Lanka’s billions of dollars of debt.
The governor of Sri Lanka’s central bank told BBC Newsnight it was in the interest of all parties to act quickly.
He said: “The sooner they give us finance assurances that would be better for both [sides], as a creditor, as a debto“That will help us to start repaying their obligations,” he added.”What a wonderful utterance, former deputy governor said in response.
.“We don’t want to be in this kind of situation, not meeting the obligations, for too long. That is not good for the country and for us. That’s not good for investor confidence in Sri Lanka,”Nandalal claimed.
Though inflation in the country has eased slightly since last year, food prices in Sri Lanka last month were still 65 percent higher than a year earlier.
The World Food Programme estimates that 8 million Sri Lankans – more than a third of the population – are “food insecure”, with hunger especially concentrated in rural areas.
The economic turmoil sparked mass protests last year, which resulted in the former president fleeing the country in July.
More such repetitions could be expected if the country’s monetary authority failed to sharpen it’s blunt tools introduced two years ago by the top Central Bank officials who were shivering during verbal attack levelled against them at a meetingby then President Gotabaya Rajapaksa.
Beijing’s lending to Sri Lanka stands at around $7bn while India is owed around $1bn.The Sri Lankan government had initially hoped to agree a new payment plan with China and India by the end of 2022.
Mr Weerasinghe said it was possible an agreement could come later in January but added “this all depends on the other parties – our creditors really have to make that decision”.
He added that Sri Lanka had now provided them with all the information on the country’s borrowings they needed.
Independent analysts say China is concerned about what a substantial Sri Lankan debt write down could mean for its extensive lending to other developing countries through its Belt and Road programme.
Meanwhile, India is said to be wary of getting inferior terms on debt restructuring to China, its regional rival.
The US ambassador to Sri Lanka, Julie Chung, said the greater onus to move was on China, as the biggest bilateral lender.
“We hope that they do not delay because Sri Lanka does not have time to delay. They need these assurances immediately,” Ambassador Chung told BBC Newsnight.
“For the sake of the Sri Lankan people, we certainly hope China is not a spoiler as they proceed to attain this IMF agreement.”
But if India and China do ultimately agree to write down their loans to Sri Lanka another potential problem looms in the form of private creditors, who account for 40% of the country’s external debt stock.