As Sri Lanka avoided an immediate debt default, averting a massive crisis, the country’s policymakers should now make use of the breathing space provided by the Indian credit lines to the tune of US $ 1.9 billion to engage with its creditors.
It should be now equipped with an International Monetary Fund (IMF) programme, to chart a durable and a sustainable path for foreign debt management, according to several eminent economists.
India last week confirmed a US $ 400 million swap line, under the SAARC currency swap arrangement and a deferral of A.C.U. settlement of US $ 515.2 million by two months, which would temporarily stop the country’s foreign reserves bleeding.
During the weekend, India announced the extension of further financial support with two bilateral funding lines—US $ 1.0 billion assigned for importation of food, essential items and medicines and US $ 500 million for importing fuel from India.
But all is not well with Sri Lanka’s external sector. Sri Lanka approximately has a US $ 1.6 billion monthly import bill and US $ 6.1 billion worth of foreign obligations to be settled during the remainder of 2022, including a billion dollar sovereign bond maturing in July.
As the path for the tourism industry that has a US $ 4.5 billion potential is still uncertain, with the direction of the pandemic, Sri Lankan policymakers will have to work harder to deal with the country’s external debt, which has bunched up till 2025.
The Indian credit lines and debt deferment provide Sri Lanka a delayed opportunity to engage with its lenders to negotiate a durable and a less painful path for foreign debt and broader economic reforms.
“Now SL has 2 months of breathing time & must settle to hard economic reforms plus honouring its promises to India to realise full gains; It Should realise India can’t fully bailout SL; time to use space for negotiating with IMF for a permanent solution,” said former Central Bank Deputy Governor Dr. W.A. Wijewardena on Twitter.
As Sri Lanka avoided an immediate debt default, averting a massive crisis, the country’s policymakers should now make use of the breathing space provided by the Indian credit lines to the tune of US $ 1.9 billion to engage with its creditors.
