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Monday April 15th, 2024

IMF working with China on possible maturity extensions for Sri Lanka, others

ECONOMYNEXT – The International Monetary Fund is working with China on extending maturities of Chinese loans to defaulted countries like Sri Lanka, as there is resistance to hair-cuts, Managing Director Kristalina Georgieva told reporters.

IMF had had discussions with China’s Finance Ministry, the People’s Bank of China, the China Development Bank and Exim Bank of China.

IMF had discussed with China to find “a pathway for debt resolution of Chad, Zambia, Sri Lanka, Suriname, to help China understand both the whole issue of debt sustainability and what can be a pathway for their contribution,” Georgrieva told reporters in Washington.

“China does not have the tradition of that coordination that exists in more mature lenders,” she said. “What is the biggest problem internally, domestically for China?

“It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore China will try to offer support to all developing countries it is genuinely with the objective to help, but also, they expect to be paid back because it is a developing country.”

“So a haircut in the Chinese context is politically very difficult, but they understood, after many interactions that there are ways in which they can reach the equivalency of a haircut by stretching maturities, reducing or eliminating interest rates, payments, and the Paris Club in their own engagement with China, so that there might be a way to reach the same objective in a way that in terms of reducing the burden of debt.”

Multilateral lenders line the World Bank and Asian Development Bank or the IMF itself do not usually give any debt relief to defaulting nations in the ordinary course of business.

Some bilateral lenders also may give maturity extensions. Both multi-lateral and Western lenders and Japan give concessionary debt where there is an identifiable ‘grant’ element.

There have been concerns that China Exim Bank (like Western Exim Banks) do not give such ‘aid’ which qualify for special treatment and China Development has been viewed by some as a regular commercial bank.

Meanwhile IMF says it will continue discussions.

” So, we of course, continue to discuss with China the value for China as a lender to have their exposure to countries defined in a way that is rational and then the countries can actually service that debt.” Georgieva said.

“But it is this is where the roundtable is so important to have that kind of substantive discussions with China and with everybody else.”

Sri Lanka, a country which survived a 30 year war defaulted in April 2022, after 7 years of monetary instability under a ‘data driven’ flexible inflation targeting where large volumes of money was printed to chase a high inflation target (as much as 5 percent or more) until forex shortages emerged.

The the impossible trinity regime was bombarded with all manner of floating rate style open market operations (overnight reverse repo, term repo, outright purchases, yield curve targeting, operation twist and output gap targeting (stimulus) until the peg collapsed repeatedly amid forex shortages.

The forex shortages made it difficult to pay maturing debt, leading to extensive monetary instability borrowings for imports and debt repayment.

Sri Lanka’s foreign debt after reserves which was about 17 billion dollars in 2015 after almost 65 years of foreign borrowings jumped to 32 billion dollars over 7 year’s of data drive flexible high inflation targeting and stimulus.

At each currency crises from the ‘impossible trinity’ flexible inflation targeting, growth collapsed as stabilization polices were applied, expanding the debt to GDP ratio, slowing the expansion of the denominator, while depreciation under ‘exchange rate as the first line of defence’ expanded foreign debt value and killed domestic purchasing power.

IMF is planning a Global Sovereign Roundtable with Paris Club, China, India, Saudi Arabia, bilateral creditors, private finance, as well as some of the borrowing members of those that are debtor countries with the IMF and the World Bank.

The roundtable is expected to fine tune the current shaky sovereign debt resolution framework.

The IMF is planning a roundtable around the next Spring or Annual meetings of the IMF and World Bank where global central bank government and finance ministers get together. (Colombo/Jan14/2022)

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  1. sacre blieu says:

    Most countries, in particular third world, etc., have been made debt-ridden by corruption and run down of the economies by politicians and have mostly found their way to first world countries, were the cash is stashed in front names and those governments should take legal action to see that these illicit monies are sent back to the country from where they were robbed. China, nor India should be made to answer for such dishonesty.

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  1. sacre blieu says:

    Most countries, in particular third world, etc., have been made debt-ridden by corruption and run down of the economies by politicians and have mostly found their way to first world countries, were the cash is stashed in front names and those governments should take legal action to see that these illicit monies are sent back to the country from where they were robbed. China, nor India should be made to answer for such dishonesty.

Iran President to visit Sr Lanka on April 24 anid rising tension, inaugurate Omaoya power project

ECONOMYNEXT – Iranian President Ebrahim Raisi will arrive in Sri Lanka on April 24 on a one-day official visit to inaugurate Tehran-assisted $529 million worth Uma Oya multipurpose development project with 120MW hydro power generation capacity, official sources said.

The announcement on President Raisi’s visit comes two days after Iran launched explosive drones and fired missiles at Israel in its first direct attack on Israeli territory, a retaliatory strike that raised the threat of a wider regional conflict.

“The President is visiting to inaugurate the Omaoya project. He will be on a one-day visit,” an official at Iran embassy in Colombo told EconomyNext.

A Sri Lankan Foreign Ministry official confirmed the move.

This is the first time an Iranian President coming to Sri Lanka Iranian after then President Mahmoud Ahmadinejad’s visit in April 2008.

The Omaoya project was originally scheduled to be completed in 2015, but had been delayed several times due to unexpected issued faced during the project cycle and funding issue after the United States imposed economic sanctions on Iran and economic crisis in Sri Lanka.

The project was started in 2010 and the funding was to be received as loan grant from the Iranian government. However, Iran was able to provide $50 million before the sanctions. Sri Lanka has to bear the cost after the sanctions.

The project includes storing water in two reservoirs with dams before being brought through a 23 km tunnel to two turbines located underground and generating hydro power with a capacity of 120 megawatts and added to the national grid.

After power generation, the water is expected to be brought to three reservoirs while supplying water to 20,000 acres of old and new paddy fields in both the Yala and Maha cultivating seasons.

The Memorandum of Understanding (MOU) for the construction was signed between the two countries in 2007 while Sri Lanka’s Cabinet approved the execution of the contract agreement between the Executing Agency, Sri Lanka’s Ministry of Irrigation and Water Management (MOIWM) of the GOSL and Iran’s FARAB Energy and Water Projects (FC).

When commencing the project on March 15, 2010, the scheduled date of completion of the project was on March 15, 2015. But the schedule completion date was extended to December 31, 2020 due to the unexpected water ingress into the head race tunnel and followed by social impacts.

The trade between the both countries suffered after the US sanctions. However, Sri Lanka inked a deal in December 2021 with Iran to set off export of tea to Iran against a legacy oil credit owed by state-run Ceylon Petroleum Corporation to the National Iranian Oil Company.

Sri Lanka owes $251 million for crude imported before the US imposed sanctions on Iran. (Colombo/April 15/2024)

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Sri Lanka to discuss two contentious points with bondholders: report

ECONOMYNEXT – Sri Lanka and sovereign bondholders are to discuss two matters in the near future which the two sides failed to reach agreement at March talks in London, a media report quoting a top aide to President Wickremesinghe as saying.

Sri Lanka and bondholders had discussed four matters on restructuring international sovereign bonds in late March and agreement had been reached on two, President’s Chief of Staff Sagala Ratnayake was quoted as saying on state-run ITN television.

A restructuring proposal by bondholders was not in line with IMF requirements, and Sri Lanka had sent a counter proposal, he said.

The matters will be discussed at round of talks in the near future.

Sri Lanka was optimistic of reaching an agreement with the bondholders before June, officials have said.

According to matters already in the public domain, sovereign bond holders are keen to get a bond tied to dollar gross domestic product, as they feel IMF growth projections are too low.

In past re-structuring so-called value recovery instruments, a type of warrant, gave their owners extra payments if a country did better than expected and were tied to items like oil prices.

Bondholders had initially proposed bond which would have a lower hair cut initially, and it will have additional hair cuts if growth is low (about 3.1 percent) as projected in an IMF debt sustainability analysis. (Colombo/Apr15/2024)

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BIMSTEC Secretary General visits Sri Lanka, discusses regional cooperation

ECONOMYNEXT – The Secretary General of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), discussed measures to enhance regional cooperation, during his visit to the island last week.

Ambassador Indra Mani Pandey, Secretary General of BIMSTEC visited Sri Lanka from 07 – 12 April 2024, following his assumption of office as Secretary General of BIMSTEC in January this year.

The Secretary General “met with senior officials of relevant Ministries/Agencies to discuss measures to enhance regional cooperation under various BIMSTEC initiatives,” the Foreign Ministry said in a statement.

Several BIMSTEC countries have bilateral trade agreements, such as Sri Lanka and India, Thailand and Myanmar, Sri Lanka and Thailand, but no collective regional agreement to enable intra-regional leverage.

During the visit, Secretary General Pandey held discussions with Ministry of Foreign Affairs officials and paid courtesy calls on the President and the Minister of Foreign Affairs.

Secretary General Pandey participated at an event on “Regional Cooperation through BIMSTEC” organized by the Lakshman Kadirgamar Institute (LKI) on 9 April. (Colombo/April15/2024)

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