Sri Lanka’s economic crisis is deepening with unsustainable debt of US$ 35 billion and a severe balance of payment crisis on top of lingering scars of the COVID-19 pandemic and public unrest owing to unbearable cost of living, Finance Ministry data showed.
The Ministry is currently engaged in creditors of the country to get their financing assurance for debt restructuring by conducting a virtual meeting on Thursday 03 success fully but the IMF bailout loan package of US$2.9 billion is still hanging on the balance.
Although the government authorities are determined to fulfill their obligations and commitments made to IMF as soon as possible the IMF executive Board’ consent for the bailout loan package is likely to be dragged on due to delay of China and India to endorse the arrangement, official source said.
Debt restructuring and the implementation of a deep reform program are critical for Sri Lanka’s economic stabilization, says the World Bank in its twice-a-year update, underscoring the need for Sri Lanka to build resilience.
The latest sovereign debt defaulted nation in the world owes $35 billion in total which includes bilateral, multilateral, and commercial loans as of June 30, this year, the official data showed.
The $84.5 billion economy, which is now in a deep economic crisis, has to repay outstanding debt of $10.9 billion via bilateral loans, $9.3 billion via multilateral, and $14.8 billion through commercial loans, the data released by the country’s treasury showed.
President Ranil Wickremesinghe’s government has been struggling for accurate data on foreign debts because some of the sovereign guaranteed debts have been concealed in state-owned enterprises’ accounts by past governments to underestimate the total foreign debt, government officials said.
Sri Lanka’s outstanding debt to China, its top lender since the end of a 26-year civil war, is nearly $7 billion or nearly 20 percent of the total outstanding foreign debt. China accounts for 43 percent of the total bilateral loans, the data showed.
China was earlier blamed for dragging Sri Lanka into a debt trap because of higher commercial loans it has given to the Indian Ocean Island without assessing project viability and return on investment. China has rejected such allegations.
Some of the Chinese loans were given Sri Lanka to help the country which ran into currency crises under ‘flexible inflation targeting’ with output gap targeting, probably the deadliest dual anchor conflicting monetary regime ever peddled to third world nations, and lost the ability to repay foreign loans or make trade payments.
Sri Lanka also borrowed heavily through sovereign bonds during serial currency crises and also deliberately through an ‘active liability management law’ instead of maintaining monetary stability and repaying debt by maintaining an appropriate domestic interest rate.
In 2022 India similarly gave loans instead of forcing economists in the country to raise rates, which the IMF has done.
PHOTO CREDITS; republic world