In Sri Lanka’s attempt to restructure foreign debt, India and China are crucial
Sri Lankan President Ranil Wickremesinghe on Monday expressed hope that the debt restructuring talks with India and China would be successful as the crisis-hit island nation attempts to close a much-needed bailout package deal with the International Monetary Fund (IMF). The President informed this in Parliament while presenting the budget. Sri Lanka held talks with the International Monetary Fund (IMF) on October 16 on the release of a USD 2.9 billion rescue package by the fund, the completion of which hinged on assurances from the country’s creditors on debt restructuring.
The IMF wanted to bring down the country’s large debt rollover volumes (Gross Financing Need) running up to 37 percent of GDP in 2022. Delivering his 2023 budget speech in Parliament in his capacity as the Finance Minister, Wickremesinghe said the government is talking to creditors, including China and India, to reach an agreement on debt restructuring as asked by the IMF. “We are confident that a positive outcome will be reached from these talks,” he said.
Wickremesinghe said Sri Lanka’s economy needed major reforms to wriggle out of the current economic crisis, the worst since 1948. “The economic reforms proposed by the IMF are primarily for economic stabilization,” he said. Wickremesinghe also said the loss-making state-owned enterprises would be “re-structured” and the proceeds will be used to strengthen foreign reserves.
Sri Lanka, a country of 22 million people, plunged into financial and political turmoil earlier this year as it faced a shortage of foreign currencies. It declared bankruptcy in mid-April and has suspended repaying its USD 51 billion foreign debt, of which it must repay USD 28 billion by 2027. India provided a lifeline to Sri Lanka by granting assistance worth USD 4 billion to pay for fuel and essential commodities.
The Sri Lankan government in May appointed international legal and debt advisors for debt restructuring after the country declared its international debt default for the first time in history. During his budget speech, Wickremesinghe also stressed on the need to raise state revenue. “The revenue has declined significantly to 8.3% of GDP in 2021, which is one of the lowest in the world.
“We must achieve rapid economic growth. Education, health, agriculture and marine resources, industry, trade and investment, defence, foreign relations must all be modernized,” he said. Wickremesinghe said the tax reforms already outlined by him should help raise state revenue in 2023 “enabling to move away from costly monetary financing (money printing) to cover government expenditure in the future”.
[with PTI inputs]
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