‘Negotiations with China needed as well to evolve sustainable debt restructuring proposal’

By Hiran H.Senewiratne

Sri Lanka’s debt advisors are currently looking at local debt, as a restructuring plan to negotiate with our creditors is being developed as part of efforts to make debt sustainable in order to obtain support from the IMF. The latter has specifically told us to bring a sustainable debt restructuring proposal through negotiations with China as well, President Ranil Wickremesinghe said.

“The agreement has to be reached with official creditors to go to the London Club (of private creditors).Second, and the more important issue is you have got to look at local debt as well, Wickremesinghe told an economic forum organized by the Advocata Institute, a Colombo-based think tank. The event was held at the BMICH yesterday.

The President faces the tough task of forging a consensus for a deal with the International Monetary Fund from among all lawmakers and political parties to ensure a rapid economic recovery and debt sustain ability. He was delivering the keynote address at the event.Extracts from the President’s address: “It’s certainly going to be a difficult time. I won’t say no. The first six months are going to be difficult. It will be a period we have not seen before but we all have to go through it.

“If anyone has an alternative formula or set of proposals that will make it easier. Certainly, I think we should hear them and parliament could decide between these two sets of proposals. Otherwise, we have no other way, except to bite the bullet.

“Sri Lanka has a long history of reversing IMF deals when there is a governmental change. The nationalist Sri Lanka Podujana Peramuna (SLPP) and the Center-left Sri Lanka Freedom Party (SLFP) along with other leftist parties have been against IMF reforms, while center-right parties have been in favour of a global lender’s loan programme.

“Whether we like it or not, we have to deal with the IMF. First and foremost, we have to enter into the staff level agreement with the IMF.

“If any member of parliament or any party says we are not for it, then we have the right to ask: what is your solution, what is your alternative. All parties must abide by this agreement.

“The country should focus on foreign debt first and navigate through without getting caught-up in the geopolitics of the Asian region.

“The country is unable to seek assistance from London Club in facing the current economic crisis. The London Club is an informal group of private creditors on the international stage, similar to the Paris Club of public lenders. After looking after foreign debts, the second key issue is to look at local debt.

“Local debt has already been hit by a real hair cut with the steep currency depreciation and inflation.

“Most local debt is sold at low interest rates to the Employees Provident Fund of private sector workers. Others are held at banks. If local debt is restructured, it will be even more difficult for the government to fund the deficit.”