ECONOMYNEXT – Sri Lanka’s State Finance Minister Ranjith Siyambalapitiya expects the island nation to avoid any possibility of repeated default once the foreign debt repayment starts due to a practical debt restructuring process.
President Ranil Wickremesinghe’s government has boasted of an economic recovery with easing interest rates, built up reserves, sharply fallen inflation, increased government revenue, and pick up in economic activities.
The island nation, however, has not started repaying foreign loans and still in the process of negotiation. The government has said most foreign loans under debt restructuring will have longer a grace period.
Studies by the International Monetary Fund have shown that Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same external debt-to-GDP ratio and they have repeated defaults or restructurings in short periods.
However, Siyambalapitiya expects that will not happen to Sri Lanka.
“We are in the process of a practical debt restructuring,” he told reporters at a media briefing on Thursday (21) when asked if there could be repeated default when foreign repayments are resumed.
“Domestically, we are trying to delay a $9 billion worth loan repayments. We have only stopped foreign loan repayments. We have been continuing with domestic debt repayment,” he said.
Sri Lanka has already started foreign debt restructuring process, but it is yet to conclude before starting repayment.
Siyambalapitiya said the government has considered the concerned over possible repeated default.
“Our understanding with the IMF on the foreign debt repayment is to partially go for a haircut, partially postpone, partially reduce the interest rate, and partially delay the repayment of $17 billion debt out of a total $41 billion total. This is really a practical process,” he said.
“We are doing the restructuring process in a way to withstand, and we can repay the debts. So, we would not face the challenge (of repeated default).” (Colombo/September 23/2023)