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Sri Lanka President calls for unconditional debt relief from global creditors

ECONOMYNEXT – Sri Lanka’s President Gotabaya Rajapaksa has called for unconditional support from bilateral and multilateral lenders for developing countries especially as they have not defaulted on their debt in the past, said in an international virtual meeting on post-Covid-19 financing.

“As this is a crisis beyond the control of government and business, international support by way of unconditional budget support and compensatory debt deferment facilities for official debt will have to come from multilateral and bilateral official lenders so that private debt and equity markets will not lose confidence,” President Rajapaksa had told a virtual meeting organized by Prime Ministers of Canada, Jamaica, and the UN Secretary-General on May 28, 2020.

“The multilateral and bilateral official creditors to developing countries have a special responsibility to be innovative in creating such space for developing world to revive their economies and should not insist on normal conditionalities of lending, after all, most countries have honored their debt obligations and time has come to provide new space through a decent haircut by official creditors.

President Rajapaksa said he had spoken to China’s President Xi Jinping, India’s Prime Minister Narendra Modi and US National Security Advisor Robert O’Brien on the matter.

Sri Lanka’s international bonds are trading at steep discounts to face value and the sovereign rating has been downgraded to ‘B-‘ after taxes were cut in the beginning of the year in a ‘fiscal stimulus’ and the country faced forex shortages from March amid unprecedented liquidity injections rate cuts.

As a result Sri Lanka is finding it difficult to access global markets to roll-over commercial debt.

President Rajapaksa said support from official creditors will help countries access private markets.

“The profiling of official debt and medium-term emergency budget support loans by each major bilateral and multilateral lenders will not only provide macroeconomic space to meet private debt obligations and relax trade and payments systems but also restore confidence among private-sector creditors to re-energize growth and investments,” he said.

The Group of 20 nations has already announced a debt relief program for developing countries but Sri Lanka does not qualify as a middle-income nation.

“It is noted that Middle-Income Countries seem to get subsumed under the overarching classification of developing countries and thereby their requirements are not wholly met,” President Rajapaksa said.

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“The fast actions by large bilateral, multilateral agencies without placing conditionalities among themselves and coming forward as development partners in respective developing and middle-income economies is the responsibility of leading agencies and leaders of the world.”

Most multi-lateral lenders also look for debt sustainability of countries before lending to make sure that they have the ability to repay any loans.

Sri Lanka has been containing the spread of Coronavirus through aggressive contact tracing and is ahead of many countries.

“We have taken steps to ease restrictions from this week while keeping health quarantine standards to ensure the community will not be vulnerable to COVID-19 health risks,” President Rajapaksa has said.

“However as two months loss in the real economy and likely timeline to reach normalcy will be longer, external funding must be “development centric” by all aspects of such facilities.”

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