Sri Lanka is negotiating with India and China for financial assistance to avoid a balance of payments crisis according to a recent international media report. In the report, Sri Lanka’s Central Bank Chief said that “Sri Lanka is on course to avert a balance of payments crisis this year” and quoted the country’s central bank chief, expressing confidence in the island nation’s ability to secure aid from both China and India to repay looming debts.
“The South Asian country intends to use its politically important location in bailout negotiations”, Central Bank of Sri Lanka Governor Dr Indrajit Coomaraswamy said.
The report also noted that Sri Lanka began the year facing a record US $5.9 billion in debt that must be repaid by the end of 2019. After attempts to raise funds from international bond market failed, the central bank repaid US $ 1 billion in debt on Jan. 14 by dipping into foreign exchange reserves. But this payment reduced reserves to just US $ 5.9 billion — barely enough to cover about three months of imports.
According to the report faced with a looming balance of payments crisis, Colombo has been negotiating with various parties. Some of the money is owed to China.
“The Chinese share of Sri Lanka’s total external debt comes to 9%, according to the governor. A private-sector analyst estimated the figure at less than 15%. Taking part in China’s Belt and Road Initiative, though not the sole reason, did add on more debt in recent years” the report further added.
“We are right smack bang in the middle of the Maritime Silk Route, so we want to take advantage of that location to attract Chinese capital,” Coomaraswamy had said adding that New Delhi also wishes to maintain close relations with Colombo, as the South Asian island is traditionally seen as India’s backyard.
The report highlighted that pursuing aid talks with both countries requires Colombo to play a delicate balancing act, trying not to side with either Asian economic power as the rivalry between Beijing and New Delhi for influence in the Indian Ocean intensifies.
“Though debt totalling US $ 4.9 billion remains to be paid this year, about US $ 1.2 billion of that amount consists of “U.S.-dollar-denominated bonds issued domestically [that] are generally rolled over,” Coomaraswamy had told reporters.
As per the report, the government also expects another US $ 1.5 billion of inflows from bilateral and multilateral projects and programs run by lenders such as the World Bank.
Coomaraswamy had told reporters that Sri Lanka has already secured a US $ 400 million currency swap facility from the Reserve Bank of India as well as a US $ 300 million loan from Bank of China. The loan from the Chinese state-owned bank has a provision to increase it to US $ 1 billion, according to the governor.
“We have also talked to People’s Bank of China about another [currency] swap that’s still at the early stage,” Coomaraswamy said. Talks started “about a month ago,” and the size of the swap “could be up to US $1 billion again” the report added.
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