 "Sri Lanka's economy on the edge as debt burden mounts due to Covid")
Hit hard by the Covid-19 pandemic, Sri Lanka is facing its most serious financial crisis in years, raising doubts about its ability to pay its creditors.
On Tuesday, the island nation will repay $500 million towards an international sovereign bond, the first tranche of a total of $4.5 billion that it needs to pay back this year, to avoid the first default in its history. Here are the key details about Sri Lanka’s mounting debt problems:
Debt profile
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Sri Lanka, through repeated cycles of borrowing since 2007, has piled up $11.8 billion worth of debt through sovereign bonds (ISB), which makes up the largest part — or 36.4 per cent — of its external debt.
The Asian Development Bank (ADB) is in second place with a 14.3 per cent share, having lent $4.6 billion. Japan is at 10.9 per cent and China at 10.8 per cent, with each having lent about $3.5 billion each.
The rest of the debt is owned by countries, such as India and international agencies, including the World Bank and the United Nations.
Chinese loans
China has lent billions of dollars to Sri Lanka, partly under its Belt and Road Initiative (BRI), over the past decade for infrastructure projects including highways, ports, an airport and a coal power plant. Critics say the funds have been used for white elephant projects with low returns. China rejects that criticism. Sri Lanka has asked China to restructure its debt repayments to help navigate the financial crisis.
Government faces multiple challenges
The government is struggling to tame retail inflation, which is running at a decade-high, amid surging commodity prices. It is also struggling to meet a fiscal deficit target of 8.9 per cent of gross domestic product. Since November, Moody’s, Fitch and Standard & Poor's ratings agencies have all downgraded Sri Lanka on debt default worries.
Central bank Governor Ajith Nivard Cabraal has said the country will meet all its debt repayments in 2022.
Some say restructure
Some experts believe Sri Lanka should restructure its debt and establish a three-year repayment structure. Doing so would save precious dollars and lessen the burden on Sri Lankan citizens who are facing shortages of imported goods such as milk powder, gas and fuel
Sri Lanka will hold talks with the Indian Oil Corporation on Tuesday as part of a desperate measure to tide over the current fuel and energy crisis faced by the island nation, Power Minister Gamini Lokuge said on Monday. The Lanka IOC has been in operation in Sri Lanka since 2002. Sri Lanka is currently facing a severe foreign exchange crisis with falling reserves. (PTI)Lanka to hold talks with IOC