ECONOMYNEXT – Sri Lanka is discussing with China how to deal with debt after a suspension of payments as they appear unwilling to restructure debt as required by the International Monetary Fund deal, Media Minister Nalaka has said Godahewa.
“The Chinese said they will give a new loan to settle the debts. For us, it’s not a problem, but we don’t know what the West would say,” Minister Godahewa told foreign correspondents based in Colombo.
“They say you can’t have a different methodology for Chinese loans. Otherwise the principle is the same (lengthening of the content)
“The Chinese are not yet, as I understand it, willing to restructure the debt. They have done this for certain countries within the framework of very special relations.
“We are talking. The Prime Minister (of Sri Lanka) spoke with the Chinese Premier a few days ago. We are continuing.
Chinese loans to Sri Lanka accounted for about 10% of total debt and a key issue was sovereign bonds, Godahewa said.
When Sri Lankan economists printed money under flexible inflation/output gap targeting (stimulus) despite applying a third pegged rate regime (exchange rate flexible) and created currency shortages, China provided soft loans.
During the 2018 outpgap targeting crisis, China gave an 8-year loan at around 5.35% with a 3-year grace beating all commercial lenders.
Sri Lanka could get $1bn loan from China Development Bank within two months
China on track to bail out Sri Lanka with $1.25 billion in 2018
Recent talks on debt restructuring in Zambia have been delayed due to the handling of Chinese loans.
Sri Lanka has also borrowed heavily through international sovereign bonds, including through an active liability management law after triggering currency shortages through output gap targeting.
In 2020, an extreme form of output gap targeting exercise was launched by the country’s economists, triggering the worst monetary collapse in living memory and social interest.
Today, the country is scrambling to secure “bridging finance” for import consumption while simultaneously chasing broken ankle haircuts, still creating currency shortages. (Colombo/May02/2022)