(LANKAPUVATH | COLOMBO) –India’s Foreign Minister Subrahmanyam Jaishankar is visiting Sri Lanka for debt re-structuring talks President Wickremesinghe has said shortly after he had discussions with the Exim Bank of China.
“India’s Foreign Minister is scheduled to visit Sri Lanka on the 19th to discuss the debt restructuring process,” President Wickremesinghe was quoted as saying at a meeting with trade unions.
“We are proceeding with these activities gradually. We are currently carrying out a debt restructuring program.
“We discussed with China’s EXIM Bank this week and by now we have commenced exchanging views on it.”
Sri Lanka is trying to get an International Monetary Fund bailout but the country has to first get assurance from creditors that they would be willing to re-structure the debt in line with an economic reform program agreed with the agency.
Sri Lanka’s debt was deemed ‘unstainable’ after several years of excessive monetary instability under ‘flexible inflation targeting’ which led to a steeply falling currency, rising foreign debt and low growth.
Economic bureaucrats pointing to low growth (a ‘persistent’ output gap) form the previous currency crises then cut taxes and printed more money to close the calculated output gap.
The IMF taught the country’s trigger-happy central bank, with an existing history of 16 IMF programs after mis-managing a soft-peg, to calculate the output gap.
Sovereign downgrades came in rapid succession as foreign reserves were lost to money printing and foreign investors refused to roll-over debt cutting the country off from debt markets.
When debt is deemed unsustainable by the IMF, agencies like World Bank, the Asian Development Bank stop giving new credit due to the lack of a so-called macro-fiscal sign off from the IMF, cutting the country off from external credit.
Sri Lanka defaulted in April 2022. While most countries continued to lend agreed upon loans, Japan had to stop all existing programs in a bid to stop the already indebted country getting into more trouble with loans.
Sri Lanka is trying to get 2.7 billion US dollars from the IMF under the bailout currently negotiated.
“Following these negotiations, we will receive USD 2.7 billion from the International Monetary Fund (IMF) in three or four instalments,” President Wickremesinghe said.
“In addition, we have the capacity to get USD 5 billion from the World Bank, the Asian Development Bank etc.
“In addition, by the end of the year, a number of different programs are scheduled to recommence with Japan.”
