ECONOMYNEXT – China should co-operate with Sri Lanka’s debt re-structuring while the country should engage in responsible borrowings in the future, United State Agency for International Development Chief Samantha Power said.
Sri Lanka ran out of foreign reserves after two years of money printing and defaulted in April 2022, and the rupee collapsed from 180 to 360 to the US dollar in the worst crisis in the history of the island’s intermediate regime central bank.
Sri Lanka is now trying to restructure its debt.
“As Sri Lanka seeks to emerge from this economic crisis, the US as a creditor and a member of the Paris club stands ready to participate in the re-structuring of Sri Lanka’s debt,” Power said in Colombo.
“It is imperative that all of Sri Lanka’s creditors, most notably the People’s Republic of China, co-operate in this process openly and on comparable terms with each other.
When debt becomes unsustainable as it so clearly has in Sri Lanka, the stakes of that co-operation can mean the difference between life or death or prosperity or poverty.”
Details of the debt re-structuring she said will be handled by the US Treasury.
Sri Lanka also had to change the way it borrowed, she said.
“I think what we have seen is not only the restructuring of debt but also of changing habits that gave rise to the accumulation of that debt in the first place,” she said.
She said bureaucratic reforms and attempts to make Sri Lanka more export competitive mattered.
China’s lending to Sri Lanka, some of which was done for so-called white elephants has drawn criticism.
However, others have also pointed out that monetary instability played a key role in the accumulation of debt as the country lost the ability to repay foreign debt with current inflows in 2015, 2016, 2018, 2020 and 2021, resorting to ‘bridging finance’ style external borrowings.
Sri Lanka’s commercial debt rose from 5.0 billion dollars to 14 billion from 2014 to 2020 as the country experienced two currency crises and net foreign debt after reserves went up from around 17 billion dollars to 28 billion dollars not counting borrowings by the Ceylon Petroleum Corporation. (Colombo/Sept11/2022-M)