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Sunday March 26th, 2023

China rejects debt trap charge; says making Sri Lanka logistics hub

ECONOMYNEXT – China has rejected charges of creating a debt trap in Sri Lanka despite gaining a 99-year lease on a port, which is much longer standard commercial deals, in return for cash to repay debt, and said the island will be made into a logistics hub.

China’s foreign ministry spokesman Lu Kang said building a port in Hambantota was an aspiration of successive governments in Sri Lanka.

"The Chinese financial institutions, in light of the needs of the Sri Lankan side, provided support for it to bridge the financing gap," Lu said.

"With the advancement of the project, China adjusted the assets allocation against all odds according to the aspiration of the Sri Lankan side. These moves are all conducive to our commercial cooperation.

"I can tell these people that China and Sri Lanka will stay committed to advancing the cooperation on the project of the Hambantota Port in a bid to make Sri Lanka the logistics hub of the Indian Ocean."

Lu comments came after a New York Times report on ‘How China got Sri Lanka to cough up a port’.

The report said Sri Lanka leased the port to China, because the island was unable to repay the Chinese debt taken to build it and there was not enough revenue.

The report alleged that the loans had been given despite feasibility report showing the port to be unvialble. In any case the port did not make enough money to repay the loan, burdening the port agency.

"As to the people who fabricated the lie of the so-called “debt trap”, if they are unable to offer tangible assistance to the developing countries, they can at least try to put the sincere cooperation between other countries in perspective," Lu said.

China got a 99-year lease on the entire Hambantota port, much higher than a 30 to 40 year lease on terminals that are the international norm.

 China had also got a standard commerical lease on a terminal in Colombo port, where it has grown volumes and is paying concession fees to the port agency.

Analysts sharply contrast the expansion of Colombp port where the Asian Development Bank funded and conduted a feasibility study with Hambantota.

Colombo port is profitable and can easily repay the ADB’s loan for the breakwater.

However analysts also fault Prime Minister Ranil Wickremesinghe’s government for not going ahead with a joint venture in the third terminal of Colombo port, despite global giants like MSC, Maersk responding to requests for proposals to complete it.

Critics say is one of the biggest failures of the administration. (Colombo/July04/2018)

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Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

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Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

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Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

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