Thu, 18 Apr 2024 Today's Paper

Lanka’s foreign debt and Chinese puzzle - EDITORIAL

1 April 2024 12:02 am - 6     - {{hitsCtrl.values.hits}}

A A A

In March this year, President Wickremesinghe in an interview said Lanka was committed to repaying its debt within the period 2027-2042. The president said he expected the ongoing debt restructuring negotiations would bring the annual external debt payments down to 4% of GDP.
The country’s foreign reserves, which stood at less than $20 million in April 2022 at the height of the economic crisis, now stand at over $3 billion, Wickremesinghe said.


For long, the International Monetary Fund, the World Bank and Western nations have claimed the delay in rescheduling Lanka’s international debt was China-which holds the largest share of our foreign debt. It was also claimed Sri Lanka was caught in a Chinese debt trap caused by taking loans to an extent they cannot be repaid. 
They warned Lanka would ultimately end up with China taking over assets of the country to meet the bill.


The IMF was been unwilling to provide funds as long as it considered Lanka was unable to pay back its debt obligations, insisting all creditors agree to a restructuring of existing debt before agreeing to fund the restructuring of our outstanding debt. 
A summary of our international borrowings published by the Department of External Resources shows 47% Commercial Borrowings, 13% Asian Development Bank, 10% China, 10% Japan, 9% World Bank, 9% other and 2% India. 


It is in this light that Premier Dinesh Gunawardene’s visit to China takes on great significance.
Michael Roberts in his article ‘Sri Lanka’s debt trap and the vultures’ points out the Hamilton Reserve Bank which holds a big chunk of one of our defaulted bonds was suing for immediate repayment.
Recently a US court granted a pause on the creditor lawsuit.


The reality is that China is not our biggest international lender nor is it demanding immediate repayment. Moreover, as Roberts points out China did not propose the Hambantota port. The project was overwhelmingly driven by the Sri Lankan government to reduce trade costs. 
The fact is three-quarters of the government’s external debt is owed to Western private financial institutions. Not to China or any other foreign government. 
Most of our major loans are a result of sovereign bond sales at high-interest level and commercial borrowings from Western creditors and multi-national lending agencies after the Covid-19 hit, ravaged the tourism sector-a major source of income. 


Covid-19 required increased spending and increased imports of health and other products, exacerbating the trade deficit. Foreign currency reserves dropped by 70 percent, meaning fewer dollars to purchase essential yet increasingly expensive imports including fuel and commodities. 
To solve this, the government started to ‘print money’ to cover its deficits. Inflation rocketed to 60 percent by June 2022. As the right-wing Chatham House study shows, “Sri Lanka’s debt crisis was made, not in China, but in Colombo, and in the international markets (Western-dominated) financial markets.” 


During the premier’s visit, China’s President Xi Jin Ping pledged to assist in restructuring the country’s external debt, a key point to maintain the $2.9 billion IMF bailout. The Chinese president also reiterated that it would not interfere in Lanka’s internal matters. 
While China is reluctant to take a haircut on its loans (the difference between the amount of a loan given and the market value of the asset to be used as collateral for the loan), it is willing to extend the tenure of the loan and adjust the interest rates.


Once again China has shown its willingness to bail us out when acts of external forces brought our country to near economic collapse. 
We cannot help but remember how China, under Chairman Mao and Premier Chou en Lai bailed our country out with the Rubber-Rice Pact when the US flooded the international market with artificial rubber knocking the bottom out of the rubber market. 


Lanka dependent on the export of tea and rubber for purchases of basics including rice was facing starvation. China exchanged rice for rubber at above market price saving the day for Lanka.  
More recently China has been at the forefront of defending Lanka against all manner of charges made by the United Nations Human Rights Council (UNHRC). 


Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

  Comments - 6

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka
  • Danny Monday, 01 April 2024 03:06 AM

    $3 billion because the country STOP paying interest on debt and STOP paying the capital back. It is known as window dressing in accountancy. Don't cheat the nation.

    Sokrates Monday, 01 April 2024 12:08 PM

    Why is it forgotten to say that China, unlike everyone else, charges exorbitant interest on its loans? It is also forgotten to say that China only gives loans for projects that are only carried out by Chinese companies. Why is it forgotten to say that the Chinese companies bring their own workers, machines and materials from China to carry out their projects, so the Sri Lankan population does not participate in it? Why is it forgotten to say that China only delivers projects of the poorest quality? Why is it forgotten to say that all projects only come about through bribery and that companies from other countries have little chance, even though they are cheaper or ultimately cheaper in terms of quality?

    Mahila Wednesday, 03 April 2024 07:04 AM

    Why and How would they Justify to their citizens and Taxpayers that Concessionary Loans - Low or NO Interest Loans or GRANTS should be afforded to Sri Lanka anymore, when there are BORROWERS' Agents profiting from some Gratification!!??? They gave GRANT for BMICH (1973), and Concessionary Low Interest Loan - Supreme Court Modernisation, but not for any Borrowings since 2005!!! GOOD, if People ask questions from "Powers that be", get ANSWERS!!!??? Why and Who DEBUNKED AND REJECTED THE ADB Loan??? Approved after Feasibility study for E01 - Hambantota Highway in 2003/04!!?? He/she is the Mastermind and Culprit of this Mess!! None Else, Not at all accountable, Stubborn and won't Own Up!!??? SO, THE so-called ICON of the POOR MASSES, instead make POOR MASSES CARRY THE CAN!!!???

    Suren Sarathkumara Monday, 01 April 2024 11:45 PM

    If one believes or wants others to believe, that China has a special love for Sri Lanka, that is already disproved a million times during the last decade. Chinese effort for global dominance is already established and is no longer a covert attempt. China leverages Sri Lankan debt restructuring bargains to increase its presence in the Indian Ocean and attempts to challenge India with a foothold in its backyard. The cino-indian geopolitical and continental landscape is not yet ripe for open display of arms. It would be only in such a heat Sri Lanka will see the trumps of China in its debt repayment bargains. The total Sri Lankan debt of China is only a pittance for a global dominator like Chinese economic empire. It would be wiser for Sri Lanka to understand that china is only at soft play and the trumps are only up in its sleeves.

    P. Wijenayake Tuesday, 02 April 2024 12:32 PM

    China well and truly trapped our greedy politicians, beware at the next election how you vote.

    Adwani Wednesday, 03 April 2024 12:45 PM

    @Sokrates - Remember every lender has its own terms to protect the loan and ensure its recovery. Chineses workers are hard working with more strength than our Lankan counterparts. SL is very well known for corruptions and the conditions imposed by China are only shows the safety of money lended. It is not the fault of China, since independence we are a poor struggling nation, never achieved anything, other than debts.


Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment




Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

MIRROR CRICKET

More