Wednesday, October 4, 2023

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Government seeks US $ 500 loan from the AIIB headquartered in China

Sri Lanka has sought a US $ 500 loan from the Asian Infrastructure Investment Bank (AIIB), headquartered in Beijing, China, for green development projects, Daily Mirror learns.

It is a multilateral development bank with the mission to improve social and economic outcomes in the world. The bank opened in January, 2016. Sri Lanka is one of its founding members..

Besides, the government has also asked for a credit arrangement from China to import materials required for apparel manufacturing. The request was made when Chinese State Councilor and Foreign Minister Wang Yi visited Sri Lanka.

This is the second installment of the $1 billion loan sought by Colombo last year

China recently signed a $500 million loan agreement with Sri Lanka, in a move to boost its foreign reserves that are under severe strain since the pandemic struck in 200.

This is the second installment of the $1 billion loan sought by Sri Lanka last year.

The first was released in March 2020, just as the pandemic hit Sri Lanka. 

The approval comes a month after Sri Lanka obtained a currency swap facility from China for $1.5 billion. Meanwhile, the Beijing-based Asian Infrastructure Investment Bank (AIIB) also sanctioned Sri Lanka’s request for a $180 million loan in February. Sri Lanka already owes more than $ 6 billion to China from past loans.

Sri Lanka is due to repay some $ 7 billion of its outstanding debt this year and the government has said it is “exploring all options.

In April 2021, foreign debt amounted to US$ 35.1 billion. Out of the US$ 35.1 billion, 47% (US$ 16383.4 million) was accounted for by international market borrowings; 10% (US$ 3388.2 million) was owned to China; 13% (4415.7 million) to the Asian Development Bank; 9% (US% 3230.9 million) to the World Bank; 2% (US$ 859.3 million) to India, and the rest was owed to others.

Sri Lanka’s gross official foreign exchange reserves fell to US$ 2,267 million in October 2021, down 73% August 2019.

Meeting foreign-currency debt-servicing needs for 2022 will be the government’s immediate concern, economic commentator Dinesh Weerakkody says. 

According to him, two big payments are due in 2022 – a US$ 500 million bond in January, followed by US$ 1 billion of debt maturing in July. It is estimated that a total of US$ 5 billion will be required to service debt obligations (principal plus interest) and other commitments in 2022.

In 2020, imports were reduced by approximately US$ 3.9 billion (a 20% reduction in comparison to 2019) resulting in a US$ 2 billion drop in the trade deficit. 

This gave the government temporary breathing room to manage foreign debt repayments in 2020, points out, an economist.

He warns that with the increase in oil prices in the global market and an expected post-COVID economic revival in Sri Lanka in 2022, fuel import bills will rise again, putting further pressure on foreign reserves. 

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