India has yet to respond to request for debt freeze, Sri Lanka turns to China

As the Rajapkasa government reaches out to international donors, China is likely to step in.

As the Rajapkasa government reaches out to international donors, China is likely to step in.

Sri Lanka’s request to India for a postponement of debt repayment amid the current economic crisis is ‘under consideration’, officials say, although no decision has been made, more than four month after the
the request was made personally by Sri Lankan Prime Minister Mahinda Rajapaksa to Prime Minister Narendra Modi.

On Saturday, Mr Rajapaksa ‘renewed calls for international monetary organizations to provide debt relief to developing countries’ during an interaction with United Nations officials, the prime minister’s office said, reiterating earlier calls to all its debt partners, including India.

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Sri Lanka braces for disheartening debt repayment

$960 million in debt

According to officials in Delhi and Colombo, the two sides discussed suspending loan repayments on the total $960 million Sri Lanka owes India, as well as two separate requests from Sri Lanka for a currency exchange facility.

External Affairs Ministry officials say they have now proposed a virtual meeting between Delhi and Colombo on the issue, to further discussions, but did not explain why the request has not been approved so far.

“The Sri Lankan side has yet to respond on the timing of the talks,” an Indian official said.
The Hindu .

Last week, President Gothabaya Rajapaksa told a group of European Union ambassadors that the country needed “new investment instead of more debt” and asked for a loan deferral. In March and April, as the coronavirus pandemic spread, he called on international donor agencies to do the same.

Sri Lanka’s foreign exchange reserves, already in jeopardy due to economic turmoil and last year’s Easter Sunday terror attacks, are further depleted after the coronavirus pandemic as its main sources of income – exports (tea and clothing), remittances and tourism sectors – are all being hit hard .

Sri Lanka is expected to repay $2.9 billion of its total external debt this year and has so far made three requests of India – a debt moratorium and two separate requests for a currency swap facility.

Sri Lanka turns to China

With bleak prospects elsewhere, the Sri Lankan government may again have to turn to China for help, as it did in 2014, which could raise red flags in New Delhi. After a conversation between Chinese President Xi Jinping and President Rajapaksa on May 13, Beijing has already approved an additional $500 million loan from its development bank to help counter the impact of the pandemic.

Asked about the moratorium talks, Chinese embassy officials in Colombo confirmed that the two countries were working together on financial cooperation “through different channels and mechanisms”.

“More practical progress will be made in the coming weeks,” Chinese Embassy spokesman Luo Chong said.
The Hindu .

Even before the coronavirus pandemic, Prime Minister Rajapaksa asked India for a debt deferral during a visit to Delhi in February, as he confirmed in an interview with
The Hindu . In April, the Central Bank of Sri Lanka requested a $400 million currency swap with the RBI under the SAARC facility and again in May, President Gotabaya Rajapaksa requested a currency swap facility” special” $1.1 billion deal to Prime Minister Narendra Modi, who had called him. to discuss pandemic responses and bilateral cooperation.

The situation could become more difficult for Colombo as the Japan International Cooperation Agency (JICA) suspended funding for a light rail transit system project, local media reported, due to debt concerns. growing island nation. Sri Lanka’s total external debt is around $55 billion, which is nearly 80% of its GDP, according to official figures last year. Of this total, China and the Asian Development Bank each hold around 14%, Japan 12%, the World Bank 11% and India around 2%.

Other countries in the region are also seeking to repay their debt. On Friday, Pakistani Prime Minister Imran Khan spoke with President Rajapaksa about joining a “global debt relief initiative” to ease the economic impact of the pandemic, according to a press release from the High Commission. Pakistani in Colombo.

In the Maldives, the government of President Solih is talking with all its bilateral partners and international agencies. “We want to discuss options as the whole world tries to deal with the economic fallout from this pandemic. We would also seek assistance from India, one of our closest friends,” presidential spokesman Ibrahim Hood said.
The Hindu .

According to government sources, the Maldives has very “small loans” from India, which prefers a more project-based development assistance program. By comparison, the Maldives owes China nearly $1.5 billion, including $600 million government-to-government, which may require a change from the Solih government’s tough stance on what he called the Chinese “debt trap” because of the Belt and Road Initiative Projects. Reports suggest China has now agreed to a partial refund, to cut dues this year from $100 million to $75 million, a development New Delhi will be watching closely.

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