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Sri Lanka being fleeced through debt restructuring, says Economic Analyst
There isn’t a significant difference between the debt restructuring proposals made by private bondholders and the government of Sri Lanka, Economic Analyst Dhanusha Gihan Pathirana told The Island.
On 16 April 2024, the Sri Lankan government announced that the country’s debt restructuring process with private bondholders had hit a roadblock and that despite “constructive discussions”, the two sides did not come to an agreement on “restructuring terms.” The Ministry said that the Steering Committee comprises 10 of the largest bondholders and that the Ad Hoc Group controls “approximately 50 percent of the aggregate outstanding amount of ISBs.” These bondholders represent about 12 billion U.S dollars of the country’s total debt.
“When one looks at the announcement, one would feel that there is a significant difference in the proposals by private bondholders and the government of Sri Lanka. Verite Research has found that there isn’t a significant difference between the proposals made by private bondholders and the government of Sri Lanka,” he said.
The average interest rates for commercial loans are about 5 to 6 percent. The Ad Hoc Group of Bondholders, which consists of some of the country’s biggest private holders of debt, in its proposal has called the South Asian nation to issue a “Macro-Linked Bond” (MLB) as a part of new securities that will be offered to those who hold existing bonds.
“The Ad Hoc Group has suggested Sri Lanka pays an interest rate of 9.75 percent for the MLBs if Sri Lanka grows, on average by 5.3 percent, in the coming five years. The government has agreed to go up to 9 percent. You can see the difference here is minute,” he said.
He said that if Sri Lanka has to pay private bondholders over 9 percent interest when the average growth rate is around 5.3 percent from 2024 to 2028, the interest rate is almost double that of growth rate.
“One of the economic principles is that growth rate and interest rates must be roughly equal. If the profit rate is significantly higher than the growth rate, there will be significant inequality. Thus, the proposals of the bondholders and the government is a violation of basic economic principles,” he said.
Sri Lanka is trying to restructure about 25 billion dollars of its debt, although the total foreign debt is about 50 billion dollars. Sri Lanka continues to pay about 11 billion dollars of debt from multilateral organizations.
“But we are paying them. This is one of the points China raises. What the Chinese ask is why aren’t the multilateral agencies taking a haircut for the loans they have given,” he said.
The bond holders have agreed to give a 28 percent haircut to the debt they hold. However, in 2001 Argentina imposed a roughly 75 percent haircut on its creditors while Greece received a 64 percent haircut in 2012. Sri Lanka is trying to restructure about 25 billion dollars of its debt, although the total foreign debt is about 50 billion dollars. Sri Lanka continues to pay about 11 billion dollars of debt from multilateral organizations.
“Look at what has happened to Greece and Argentina even after such a large haircut. The debt to GDP ratio of Greece was about 160 percent in 2012. Even with a haircut which was over 50 percent of its GDP, Greece again has a debt to GDP ratio of about 160 percent,” he said.
On the other hand, if the GDP of the country picks up and goes above 98.9 billion dollars in 2028, Sri Lanka will virtually get no haircut from private bond holders.
“Imagine if we continue to grow at 5.3 percent, the haircut for private creditor debt will drop to about six to seven percent. The IMF says our GDP will be at about 80 billion by 2028. The Ad Hoc Group says, if the GDP is over 96 billion, they want Sri Lanka to pay an interest rate of 9.75 percent. This is simple,” he said.
Pathirana said the Sri Lankan government, too, has asked for a very small haircut, with a proposal that is identical with the one presented by the debt holders.
“The government wants to show us that it’s bargaining. Unfortunately for us, this is all very performative. What I want people to understand is, if Greece and Argentina are still in trouble despite massive haircuts, what is the fate of Sri Lanka that is asking for a very small haircut?” he asked.
When countries restructure, the concept of net present value is used, he said. The country will probably get a five-year period where we won’t have to repay debt from private creditors. However, once Sri Lanka starts to pay back loans it will have to pay 1.3 billion dollars as interest for the loans, which is subjected to another four percent interest.
“This is what we call ‘poli pita poli gahanawa’ (interest on top of interest). They are fleecing us,” he said.
The U.S. Embassy in Colombo welcomed the U.S. Sports Envoys to Sri Lanka, former National Basketball Association (NBA) and Women’s National Basketball Association (WNBA) players Stephen Howard and Astou Ndiaye, from June 8 through 14.
The Public Diplomacy section of the U.S. Embassy said that it would launch a weeklong basketball program intended to harness the unifying power of sports, made possible through collaboration with Foundation of Goodness and IImpact Hoop Lab.
While in Sri Lanka, Howard and Ndiaye, both retired professional basketball players, will conduct a weeklong program, Hoops for Hope: Bridging Borders through Basketball. The Sports Envoys will lead basketball clinics and exhibition matches and engage in leadership sessions in Colombo and Southern Province for youth aged 14-18 from Northern, Uva, Eastern and Western Provinces, offering skills and leadership training both on and off the court. The U.S. Envoys will also share their expertise with the Sri Lanka Basketball Federation, national coaches, and players, furthering the development of basketball in the country. Beyond the clinics, they will collaborate with Sri Lankan schoolchildren to take part in a community service project in the Colombo area.
“We are so proud to welcome Stephen and Astou as our Sports Envoys to Sri Lanka, to build on the strong people-to-people connections between the United States and Sri Lanka,” said U.S. Ambassador Julie Chung. “The lessons that will be shared by our Sports Envoys – communication, teamwork, resilience, inclusion, and conflict resolution – are essential for leadership development, community building, equality, and peace. The U.S. Sports Envoy program is a testament to our belief that sports can be a powerful tool in promoting peace and unity.”
SJB Colombo District MP Mujibur Rahuman in parliament demanded to know from the government the reasons for CEB suspending the leave of all its employees until further notice from Thursday.
MP Rahuman said that the CEB has got an acting General Manager anew and the latter yesterday morning issued a circular suspending leave of all CEB employees with immediate effect until further notice.
“We demand that Minister Kanchana Wijesekera should explain this to the House. This circular was issued while this debate on the new Electricity Amendment Bill was pending. There are many who oppose this Bill. The Minister must tell parliament the reason for the urge to cancel the leave of CEB employees,” the MP said.However, Speaker Mahinda Yapa Abeywardena prevented Minister Wijesekera responding to the query and said that the matter raised by MP Rahuman was not relevant.
The Chartered Institute of Personnel Management (CIPM) successfully concluded the 8th Annual CIPM Symposium, which took place on 31st May 2024. Themed “Nurturing the Human Element—Redefining HRM in a Rapidly Changing World,” the symposium underscored the pivotal role of human resource management (HRM) in today’s dynamic global landscape. Since its inception in 1959, CIPM has been dedicated to advancing the HR profession through education, professional development, and advocacy, solidifying its position as Sri Lanka’s leading professional body for HRM.
Ken Vijayakumar, the President of the CIPM, graced the occasion as the chief guest. The symposium commenced with the welcome address by the Chairperson, Prof. Arosha Adikaram, followed by the Web Launch of the Symposium Proceedings and Abstract Book by the CIPM President. The event featured distinguished addresses, including a speech by Chief Guest Ken Vijayakumar, President of CIPM, and an address by Guest of Honor Shakthi Ranatunga, Chief Operating Officer of MAS Holdings Pvt. Ltd., Sri Lanka.
The symposium also featured an inspiring keynote address by Prof. Mario Fernando, Professor of Management and Director of the Centre for Cross Cultural Management (CCCM) at the University of Wollongong, Australia.
Vote of Thanks of the inauguration session was delivered by Dr. Dillanjani Weeratunga, Symposium Co-chair.
The symposium served as a comprehensive platform for researchers to present their findings across a wide range of critical topics in HRM. These included Cultural Diversity and Inclusion, Talent Development and Retention, Ethical Leadership and Corporate Social Responsibility, Adapting to Technological Advancements, Mental Health and Well-being at Work, Global Workforce Challenges, Employee Empowerment, and Reskilling and Upskilling.
The plenary session was led by Prof. Wasantha Rajapakse. Certificates were awarded to the best paper presenters during the valedictory session, followed by a vote of thanks delivered by Kamani Perera, Manager of Research and Development.
The annual symposium of CIPM was a truly inclusive event, attracting a diverse audience that spanned undergraduates, graduates, working professionals, research scholars and lecturers. This widespread interest highlights the symposium’s significance in the field of HRM, offering a unique opportunity for everyone to network and learn from scholarly brains.The CIPM International Research Symposium was sponsored by Hambantota International Port, Sri Lanka Institute of Information Technology (SLIIT), E B Creasy & Co. PLC, and Print Xcel Company.
US sports envoys to Lanka to champion youth development
Rahuman questions sudden cancellation of leave of CEB employees
