An Echelon Media Company
Thursday March 23rd, 2023

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)

Comments (1)

Your email address will not be published. Required fields are marked *

  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.

View all comments (1)

Comments (1)

Cancel reply

Your email address will not be published. Required fields are marked *

  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.

Sri Lanka establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

Continue Reading

Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

Continue Reading

Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

Continue Reading