Sri Lanka announces: on Tuesday announced the failure to repay all of its $ 51 billion foreign debt as a “last resort” as the island nation struggles to cope with the huge economic crisis.
The government is taking “urgent action”, pending full negotiations with the International Monetary Fund (IMF) seeking help to prevent further deterioration in the country’s financial situation, the Treasury said. The comprehensive debt restructuring program is now “inevitable”, the statement said.
This decision comes after two other important policy changes. Sri Lanka flocked to the rupee at the beginning of March, allowing for a sharp drop in its value – almost 320 compared to the US dollar on Tuesday. Recently, the Central Bank raised interest rates by 7 percent in an effort to tighten monetary policy, apparently in preparation for the IMF package the government wants to “speed up”.
“The question now is how the ISB owners view this decision,” opposition lawmaker and economist Harsha De Silva told Hindu. He was referring to International Sovereign Bonds or market loans that account for a significant portion, or almost half, of Sri Lanka’s foreign debt.
“The government should have asked for their permission instead of running in one, as strong, elections. They have run out of money, ”he said. The opposition United National Party has asked for a “full explanation” in Parliament, on what led to the “situation” when the legislature convened on April 19.
11,000 MT of rice from India arrives in Sri Lanka.
Commenting on Tuesday’s announcement, economist Anush Wijesinha said on Twitter: “While this is an automatic form, it is better than the situation where GoSL simply fails to make a certain coupon or bond to be paid (many come on time. Weeks and months to come); The MoF has adopted a “policy framework” that applies to all; and the efforts to build charity. ”
Ahilan Kadirgamar, a political economist at the University of Jaffna, said the government’s failure to start negotiations with the IMF meant that “Sri Lanka had completely lost its ability to negotiate” with an international lender.
Ever since the government reluctantly agreed to join the IMF program, some in Sri Lanka have been warning of the possible impact of IMF conditions on the general public, including possible global tax increases, reduced state spending due to poor conditions, and pushing to lose state-owned enterprises. .
“This IMF plan is likely to have the same effect as in 1977-78, when Sri Lanka went through the IMF’s restructuring process, as it became the first country to liberate its economy in South Asia. It could mean a full attack on what is left of our social system, depriving our working people and jeopardizing our legacy of high levels of human development, “said Mr. Kadirgamar.
Despite the economic crisis in the past, Sri Lanka has maintained an impeccable credit record which makes the country a good partner for lenders.
Meanwhile, the Governor of the Central Bank of Sri Lanka has demanded donations of “much needed foreign currency” from Sri Lankans living abroad, to expand its reserves as it faces severe shortages of food, fuel and medicine. In a statement Tuesday, the newly appointed Governor P. Nandalal Weerasinghe assured the “well-wishers” that their foreign exchange transfers would only be used for “purchasing valuable assets”.
India recently extended its $ 1 billion debt line to help Sri Lanka import important goods. On Tuesday, a load of 11,000 MT of rice arrived from India on an island nation, following the 5000 MT already approved by Line of Credit.
Shortages of food and fuel, coupled with long daily power outages, have brought widespread suffering to the world’s 22 million people in the worst case scenario since independence in 1948.
Public outrage erupted in recent weeks as mobs tried to storm the homes of government officials and security forces, dispersing protesters with tear gas and rubber bullets.
Sri Lanka’s Ministry of Finance said the country violated all foreign obligations, including foreign government loans, before the International Monetary Fund was rescued.
“The government is taking this urgent action as a last resort to prevent a recession in the Republic,” the department said in a statement.
Debtors were free to use any interest rates they had to pay or choose to repay with Sri Lankan rupees, the department said.
The escalating economic crisis in Sri Lanka began with the inability to import important goods, after the coronavirus epidemic reduced significant revenue from tourism and remittances.
The government closed a comprehensive ban on imports to save its foreign currency and use it to pay off debts it has now paid off.
Economists say the economic situation has worsened as a result of government mismanagement, years of borrowing and tax evasion.
Public frustration with the government is widespread, with long lines circling the island country every day to buy rare items of gas, gas, and paraffin for cooking stoves.
Thousands of people camped outside the office of President Gotabaya Rajapaksa near the sea in the capital Colombo on the fourth day of a series of protests demanding his resignation.
International rating agencies have also downgraded Sri Lanka last year, effectively preventing the country from accessing foreign exchange markets in order to raise new debt and meet demand for food and fuel.
Sri Lanka wanted to be free from debt in India and China, but both countries instead offered additional credit lines to buy goods from them.
Also read: Covid-19 fourth wave: Will it be dangerous ?
