Paris Club proposes 10-year moratorium on Sri Lanka’s debt
NEW DELHI: Putting equal onus on the rich global north and developing global south, the Paris Club creditor nations are proposing a 10-year moratorium on Sri Lankan debt and another 15 years of debt restructuring as a formula to resolve the current financial crisis in the island nation.
While the Paris Club is yet to formally reach out to India and China, two of Sri Lanka’s biggest creditors, with Beijing holding nearly 50% of external debt, Colombo on its part is still to initiate a formal dialogue with the Xi Jinping regime. The chances of getting extended fund facility of $2.9 billion approved from the International Monetary Fund executive board this month range from very low to non-existent. This means that Sri Lanka will have to wait for the March meeting of the IMF before any aid is extended by the Bretton Woods institution.
While Sri Lanka owes some $800 million in structured debt to India, the Narendra Modi government has provided emergency aid to the tune of $4 billion to the island nation to tide over its economic crisis. China, Chinese Exim and China Development Bank hold billions of US dollar debt with Sri Lanka, with the total external debt of the island nation touching nearly $40 billion.
Putting equal onus on the rich global north and developing global south, the Paris Club creditor nations are proposing a 10-year moratorium on Sri Lankan debt and another 15 years of debt restructuring as a formula to resolve the current financial crisis in the island nation.
While the Paris Club is still to formally reach out to India and China, two of Sri Lanka’s biggest creditors, with Beijing holding nearly 50% of external debt, Colombo on its part is still to initiate a formal dialogue with the Xi Jinping regime. The chances of getting extended fund facility of $2.9 billion approved from the International Monetary Fund (IMF) executive board this month range from very low to non-existent. This means that Sri Lanka will have to wait for the
March meeting of the IMF before any aid is extended by the Bretton Woods institution.
While Sri Lanka owes some $800 million in structured debt to India, the Narendra Modi government has provided emergency aid to the tune of $4 billion to the island nation to tide over its economic crisis. China, Chinese Exim and China Development
Bank hold billions of US dollar debt with Sri Lanka, with the total external debt of the island nation touching nearly $40 billion. The Sri Lankan government’s public debt has gone up from 115.3% of GDP in end 2021 to 143.7% in end June 2022.
Due to the misgovernance of the Rajapaksa regime and reckless undertaking of white elephant projects on high-interest loans from China’s exim and development banks, Sri Lanka is not only economically but politically fragile as local politicians are largely discredited and the radical left are making inroads into the polity due to perceived corruption of the past regime.
The fact is that for Sri Lanka to revive, creditors will have to take a huge haircut, with the Paris Club clearly hinting that the global south should also take the same cut as global north, notwithstanding the inequitable distribution of wealth. In the meantime, as Colombo is still to get its act together and initiate a dialogue and debt reconciliation with China, it will need bridge funding to sustain the next three months before the IMF executive board meeting in March 2023. Clearly, things will get much worse for Sri Lanka before they get any better, both economically and politically.