Home » SL compels to settle US$ 3.2 billion even after backfiring preemptive debt default

SL compels to settle US$ 3.2 billion even after backfiring preemptive debt default

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Sri Lanka is compelled to settle US$ 3.2 billion worth foreign currency obligations to be settled this year even after announcing a debt standstill (preemptive default) on selective debt last year until creditors agree to restructure them. The data made available by the Central Bank showed the country is still required to repay external obligations stemming from foreign currency loans, securities and deposits up to US$ 3,185 million in 2023 consisting of US$ 2,738 million in principal payments and US$ 447 million in interest. This irresponsible and illegal decision of pre-emptive default plunged Sri Lanka into a serious abyss of economic and financial isolation as a “bankrupt” nation, with the consequential severely damaging repercussions due to haunt the nation for many years to come, several economic experts warned. However, the debt suspension applied only to select debt categories, owed predominantly to bilateral partners and commercial creditors for the debt raised through International Sovereign Bonds. The Central Bank said this US$ 3.2 billion payable in 2023 consists of, “projected short-term net drains after the announcement of the suspension of selected external debt servicing by the government for an interim period”. The debt suspension doesn’t seem to apply on swap facilities the Central Bank obtained from its friendly central banks and multilateral funders. Under normal circumstances, Sri Lanka has about US$ 6.0 billion total debt repayments for a year at least for the next 3-4 years. A few days ago, Bangladesh expressed confidence that its US$ 200 million swap facility first extended to Sri Lanka in 2021 would be repaid by the Lankan authorities by September this year. Sri Lanka’s IMF programme grinds on as the country entered the IMF process after defaulting on its foreign currency loans. Hence, this requires debt assurance from all its bilateral creditors before the Executive Board approved the envisaged US$ 2.9 billion programme. As both the Paris Club creditors and India have provided their assurance by now, Sri Lanka awaits more credible assurances from China whose 2-year moratorium on debt falls short of what the IMF requires. The ratings agency affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka, as well as reiterated the outlook for the island nation at ‘negative’. Without taking action to manage forex debt servicing of $244 million in April 2022 using available forex inflows, the Central bank has suspended repayment of $ 789 million for May and June dragging the country into debt default abyss, an eminent economist said. He stated that when a sovereign forex loan is not repaid, the credibility of the country will be lost, and investors will avoid that country. It will be very difficult for the defaulting country to obtain new forex loans thereafter. The access to International Bond Markets may be lost for at least 5 to 10 years after the default. The country’s banking system will be placed under a lot of pressure and face very serious difficulties when opening letters of credit and carrying out forex transactions, he pointed out
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