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Sunday March 26th, 2023

Paris Club communicates on Sri Lanka debt re-structuring with IMF: report

ECONOMYNEXT – The Paris Club of Western lenders has informed the International Monetary Fund of their support for Sri Lanka debt re-structuring, a media report said, as the country seeks to re-structure its debt and get a bailout from the agency.

Bloomberg Newswires citing un-named sources said the Paris Club had communicated with the IMF.

There was no immediate official reaction from the IMF.

The IMF has so far only accepted the letter of debt re-structuring sent by India.

India sent a letter on without any wording on conditions relating to the actual treatment they are offering but agreed to re-structure debt in lines with a financing plan contained in a draft IMF agreement with Sri Lanka.

A letter from the Exim Bank of China to Sri Lanka which reportedly contained wrong wording such as the grace period they were prepared to offer.

Details have to be agreed after the IMF’s executive board approves a re-structuring plan.

Sri Lanka officials have said they were continuing to talk to China.

Paris Club, which has participated in debt re-structuring earlier was expected to provide debt assurance in line with IMF requirements as long as India and China, which was outside the group also did the same.

Negotiations with China had delayed IMF programs in several countries.

The US has said Paris Club was ready to support Sri Lanka but China has to also give assurances in line with requirement.

“We the United States is prepared to do its part,” US Under Secretary of State Victoria Nuland said during a visit to Sri Lanka.

“Paris Club partners are prepared to do their part.”

Paris Club and the International Monetary Fund is trying to get China, which is classified as an ad hoc participant in their deliberations to work more closely on debt workouts.

China is a large lender to several countries which are experiencing severe monetary instability at the moment.

Sri Lanka’s central bank has hike rates, reduced money printing and achieved external stability by December 2023.

However in January some domestic operations have been conducted in a bid to get interest rates down, which have been high due to a delay in unlocking foreign aid and fears of a domestic debt re-structuring.

Sovereign bond holders are also prepared to help Sri Lanka in line with a 4.5 percent external gross financing need ceiling by 2027, provided domestic debt rollovers were extended to match a ceiling of 8.5 percent, sources have said. (Colombo/Feb03/2023)

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  1. sacre blieu says:

    All the serious lenders will not send us any money as yet until the elections are held and the return to discipline and democracy are assured and put in place. We need a paradigm shift from all this muck and the political atmosphere tamed and brought back to true governance. The people have given pride of place and not the rogues and murderers who took all to be suckers and brought everyone to be idolatry posterior worshipers.

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  1. sacre blieu says:

    All the serious lenders will not send us any money as yet until the elections are held and the return to discipline and democracy are assured and put in place. We need a paradigm shift from all this muck and the political atmosphere tamed and brought back to true governance. The people have given pride of place and not the rogues and murderers who took all to be suckers and brought everyone to be idolatry posterior worshipers.

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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