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Economy vs. foreign debt trap: Beggars cannot be choosers  

07 Mar 2021

Beggars cannot be choosers, and we are currently beggars. We have several loans to pay off within the next 12 months, loans taken by both the Government and private parties, so we have to get these loans somehow, whether it involves selling Sri Lanka is expected to receive another loan of $ 2.2 billion from China, according to recent media reports – a loan both politicians and economists say is desperately needed by the country. Speaking to The Sunday Morning, State Minister for Money and Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal stated that the Government was hopeful of finalising a $ 1.5 billion swap facility with China's Central Bank, which will be used as a "buffer" to meet the Government's foreign currency needs. Moreover, the Government will also receive another loan of $ 700 million from the China Development Bank to be drawn in Chinese currency, where an amount of $ 300 million is expected to materialise within the next few weeks and would be used for development work within the country.  However, former State Minister Dr. Harsha de Silva condemned the taking of these loans during a recent statement to the media, and stated that Sri Lanka already has a large debt to pay within the next 12 months. He explained that while the Government has limited imports and the Central Bank of Sri Lanka (CBSL) introduced regulation in order to acquire 10-25% thresholds on export income, they are also going deeper into debt by taking these additional loans.  Despite this, economist and former CBSL Deputy Governor Dr. W.A. Wijewardena stated that unless Sri Lanka receives new loans, whether it is from China, India, or the US, the country will face a very critical situation.  "Beggars cannot be choosers, and we are currently beggars. We have several loans to pay off within the next 12 months, loans taken by both the Government and private parties, so we have to get these loans somehow, whether it involves selling another terminal or the oil tanks in Trincomalee,” he said when speaking to us.  He explained that according to CBSL data, the total country debt to be paid within the next 12-month period is around $ 8.7 billion, with the Government having a debt of $ 4.5 billion, while the private sector has an obligation of $ 6.4 billion, and another $ 2.3 billion being owed due to small-term arrangements.   "People who say we are going deeper into the Chinese debt trap are ignoring the fact that Sri Lanka is in a very critical situation, and do not have the luxury of turning down loans."  He further emphasised this need for money by pointing out the country's foreign reserves which are falling day by day. As of January, the total foreign reserves of the country were only $ 8 billion, from which Dr. Wijewardena deducted another $ 400 million for our gold reserves which cannot be sold immediately.  "We have usually maintained a gold reserve of around 19 metric tonnes, but as of February 2020, we have sold 13 metric tonnes, so we only have 6 metric tonnes remaining, which cannot be sold immediately."   Official figures show Sri Lanka's foreign reserves plummeted to $ 4.8 billion at the end of January, the lowest since September 2009 when they fell to $ 4.2 billion. The reserves which were $ 5.7 billion as of December 2020, have now marginally fallen below the foreign debt obligations for the first time in the recent past.  "So, this shows that we are beggars and therefore we cannot be choosers. We need every dollar we can get, whether it is from China, India, or even the US."  According to Cabraal, Sri Lanka has already repaid $ 500 million this year out of its $ 3.7 billion debt servicing commitment for the calendar year of 2021. He told the media earlier that the Government has imposed a ban on luxury imports and several other commodities in order to conserve foreign exchange so that the country could have sufficient foreign currency to repay its debt. Meanwhile, Cabraal also told The Sunday Morning that “the CBSL's new programme to purchase foreign exchange from the market from remittances and surrender export proceeds by exporters is gaining traction, and already nearly $ 35 million has been purchased in the past few days”. 


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