Sri Lanka is going for Paris Club talks and negotiations with China, India and other creditors to convince them on their debt restructure under extremely difficult and unfavorable conditions being created as a result of preemptive debt fault declaration made on April 12,several economic experts claimed.
This was the shortest sighted decision taken by the then government in a haste and the then Finance Minister Ali Sabri who has taken the responsibility for it without parliamentary approval, they pointed out.
In response to a statement made by his own government colleague at present Vajira Abey wardena who blamed the Central Bank Governor Nandalal Weerasighe for ill advised the then Finance Minister Ali Sabri told parliament recently that Dr. Weerasinghe gave him necessary advices to make the decision.
He noted that the government was in a dilemma whether debt should be serviced or the remaining amount of reserves should be used for essentials at that time and if someone wants to strip the Central Bank governor of the position, he is ready to step down instead.
His resignation will not help in coming out from the present economic abyss where the whole country had been pushed as the country will lose IMF bailout loan if a single creditor is opposed to debt restructuring process, they claimed.
Sri Lanka has taken this decision to declare preemptive debt default on April 12 at a time where the Central Bank had to pay around 50 percent of the total 2022 debt of US$ 7 billion in the first quarter of this year. The payment due for the second quarter was $ 600 million to China, Mahinda Pathirana former Chairman of Press Council revealed in statement published in his face book
At that time the Central Bank has finalized all arrangements to obtain a loan facility of $2.5 billion to settle this debt. China has insisted Sri Lanka from the inception not to default on their loans as they cannot agree to such arrangements.
Therefore the Chinese Ambassador in Sri Lanka has offered a low interest loan to service their loan and another $1.5 billion long term finance facility to import raw materials for local industries such as garment factories.
Further another $1 billion was in the pipeline by issuing green bonds via Credit Suisse Bank
Despite these debt repayment arrangements, Central Bank Governor Nandalal Weerasinghe has declared the preemptive debt default.
Sri Lanka has to service debts taken from the IMF, World Bank, ADB. At the time of default there was only $1 billion International Sovereign Bond to be matured in July 2022 and several other interest payments.
The country has a steady inflow of foreign exchange from exports amounting to around $ 1 billion, foreign remittances and tourism.
On the other hand the government was using the Indian credit line to import fuel food and medicine. Normally Sri Lanka is importing 70 percent of such items from India.
Under these circumstances the then Finance Minister Ali Sabri and the Sri Lanka delegation had left the island on an official visit to Washington on April 17 to negotiate a bailout loan from the IMF and they were in a weak position following the declaration of preemptive default of foreign debt on April 12 .
The IMF team has suggested the Sri Lankan authorities’ to engage in a collaborative dialogue with their creditors on debt restructuring as the debt sustainability was a prerequisite for the bailout loan.
Central Bank’s sudden declaration of pre-emptive negotiated default of external debt has been made at a time where there was an expected forex inflow of over US $ 10.7 billion in the pipeline as at April 4 to boost foreign reserves, a forex inflow status report showed.
According to the Central Bank’s weekly economic indicator report issued on May 27 2022, Sri Lanka had Foreign Currency Reserves amounting US$1.618 billion as at end April 2017 before the declaration of preemptive default.
This arbitrary decision was taken without the cabinet and parliamentary approval disregarding the healthy position of the forex inflows in the pipeline, a senior official of the presidential secretariat who wished to remain anonymous disclosed. .
Of the above pipeline, a sum of $ 4.5 billion was confirmed as being in the final stages by April 3 and a further amount of around $2.6 billion was very likely to materialize over the short term, he disclosed.
This forex receipts would have enabled the Government to settle the maturing payments due in 2022, while also rolling over several other existing loans, including Sri Lanka Development Bonds and Foreign Currency Banking Unit (FCBU) loans, he said.
