DEW: IMF can’t intervene in rescheduling international sovereign bonds; SJB disagrees

By Shamindra Ferdinando

Former outspoken Minister D. E. W. Gunasekera says the unprecedented crisis faced by cash-strapped Sri Lanka in meeting its external debt obligations in 2022 and 2023 cannot be solved by seeking IMF intervention.

The government has ignored repeated calls by various parties, both in and out of Parliament, to seek IMF intervention as it is aware the IMF is not in a position to intervene as close to half of the country’s external debt obligations were to the international money market, one-time General Secretary of the Communist Party told The Island yesterday.

Referring to the New York-based Fitch rating agency, downgrading Sri Lanka’s sovereign rating to ‘CC’ last Friday (17) as the country struggled to meet two major obligations repayment of two international sovereign bonds of $500 million due in January 2022 and $1 billion due in July 2022, the ex-lawmaker said the government and the Opposition should stop playing politics with this issue.

The former MP said that there were other scheduled repayments during this period both foreign and local.

The Fitch statement reflected the daunting challenges faced by Sri Lanka, the former CP Chief said, urging the government to announce how it intended to meet its debt obligations.

The latest downgrade was announced in the wake of Finance Minister Basil Rajapaksa leaving the country. Foreign Minister Prof. G.L. Peiris, who is also the Chairman of the ruling SLPP, will handle the finance portfolio.

Gunasekera said that the IMF’s role would be limited as well over 50 percent of total debt comprised international sovereign bonds and Chinese and Japanese loans.

“The government also faces foreign-currency debt service payments, including principal and interest, of $6.9 billion in 2022, equivalent to nearly 430% of official gross international reserves as of November 2021. Cumulative foreign-currency debt service, including interest and principal, amounts to about $26 billion from 2022 through to 2026,” the rating agency said.

Asked whether the IMF could help re-schedule international sovereign bonds, former Central Bank Governor W.D. Lakshman told The Island that it was possible.  The government in Sept replaced Lakshman who had served as Governor since Dec 2019 with Ajith Nivard Cabraal. Underscoring the importance of addressing the issue at hand, Lakshman emphasized that Sri Lanka had never defaulted before.

SJB spokesman Dr. Harsha de Silva, MP, reiterated that the IMF could reschedule international sovereign bonds, too.  The former State Minister said that was his position throughout this period.

Gunasekera, too, stood by his assertion that the IMF couldn’t intervene in this regard.

Former Governor of Uva, Southern and Central Provinces Rajith Keerthi Tennakoon yesterday said that the snowballing problem couldn’t be solved by those countries willing to help Sri Lanka and international lending agencies as Sri Lanka obtained the majority of loans from the capital market. Tennakoon asserted that Sri Lanka faced a huge challenge in addressing this issue amidst continuing political turmoil. The civil society activist emphasized that those who sought to address the crisis by printing lorry loads of money owe the country an explanation. The debt-serving crisis and the growing difficulty in meeting the oil bill would ultimately overwhelm the country, Tennakoon said.