As the debt burden rises on the banks of the Explainer-Sri Lanka, Reuters is on the rise

Author: Uditha Jayasinghe

COLOMBO (Reuters) – In the wake of the COVID-19 pandemic, Sri Lanka is experiencing its worst financial crisis in years, raising doubts about its ability to pay its creditors.

On Tuesday, the island nation will return $ 500 million for an international sovereign bond, the first tranche of a total of $ 4.5 billion to be repaid this year, to avoid the first gap in its history.

Here are the main details about Sri Lanka’s growing debt problems https://www.reuters.com/markets/asia/sri-lanka-debt-pain-will-go-china-wall-st-2022-01-11 .

DEBT PROFILE

Sri Lanka, through repeated loan cycles since 2007, has accumulated $ 11.8 billion in debt through sovereign bonds (ISBs), which accounts for the largest share of its external debt — or 36.4%.

The Asian Development Bank (ADB) is in second place with a 14.3% share of $ 4.6 billion in loans. Japan is at 10.9% and China at 10.8%, each with about $ 3.5 billion.

The rest of the debt is owned by countries such as India and international agencies such as the World Bank and the United Nations.

CHINESE LOANS

China has lent billions of dollars to Sri Lanka, in part its Belt and Road Initiative (BRI), over the past decade for infrastructure projects such as highways, ports, an airport and a coal-fired power plant.

Critics say the funds have been used for low-yielding white elephant projects. China rejects this criticism.

Sri Lanka has asked China to return https://www.reuters.com/markets/rates-bonds/sri-lankas-president-asks-china-restructuration-debt-repayments-2022-01-09 to help navigate. financial crisis.

GOVERNMENT CHALLENGES TO ANIBERRI

The government is struggling to control retail inflation, which is at its highest level in a decade, amid rising commodity prices. It is also struggling to meet its 8.9% gross domestic product fiscal deficit target.

Since November, Moody’s (NYSE :), Fitch and Standard & Poor’s rating agencies have downgraded Sri Lanka due to debt concerns. Central Bank Governor https://www.reuters.com/markets/rates-bonds/sri-lanka-meet-all-debt-repayments-while-rebuilding-fx-reserves-cenbank-chief-2022-01-12 Ajith Nivard Cabraal said the country will meet its debt in 2022 to repay its debt.

RESTRUCTURING SOME, DO NOT PAY

Some experts believe that Sri Lanka should restructure its debt and establish a three-year repayment structure.

Doing so would save precious dollars and reduce the burden on Sri Lankan people who suffer from a shortage of imported goods, such as milk powder, gas and fuel.

“Sri Lanka has made an unreasonable commitment to pay off its debt. It is more prudent to pause to repay its debt and take care of critical economic needs,” Dr. Nishan de Mel told Reuters, executive director and economist of Verité Research.

RECONSTRUCTION OF FOREX RESERVATIONS

Fitch estimates the Sri Lankan central bank will need to raise $ 2.4 billion to help meet the country’s state and private business debt obligations in 2022, in addition to the central government’s $ 4.5 billion debt.

The country needs about $ 20 billion for essential imports, such as fuel, food, and export goods.

Reserves have been at a critical level for months, but rose to $ 3.1 billion at the end of December, driven by a $ 1.5 billion yuan exchange from China.