Harsha hints at Chinese hurdle in debt relief talks

By Saman Indrajith

SBJB MP Harsha de Silva said that he had asked the Gotabaya Rajapaksa administration to seek IMF assistance in 2020.

“At that time a U.S dollar was selling at Rs 200. The interest rates were around six percent. Inflation was around six percent. The situation is completely different today. Our interest rates are around 35 percent and the inflation is over 50 percent. Dollar sells at Rs 370. We have defaulted.”

No foreign nation or international institution had any faith in Sri Lanka, De Silva said.

“Now, we are begging the IMF to help us. The IMF will give us 2.9 billion dollars. It’s not the money that’s important but after we get the money other countries will think we are now following a viable plan to get out of the crisis. IMF and economic reforms are the two sides of the same coin,” he said,. When he suggested to the Rajapaksa administration to go before the IMF, the situation was simpler, de Silva said.

Then it would have been an agreement between Sri Lanka and the IMF.

“Now there are three parties, simply speaking. The government, the IMF, and our lenders. There are bilateral lenders like Japan, China, and India as well as private entities that have bought our bonds. If we can’t come to an understanding with the official creditors, the IMF can’t give us money. That’s their policy,” he said.

India has given a written financing assurance to the IMF in support of Sri Lanka’s economic revival. China has not yet given this assurance, the SJB MP said.

“China has not given these assurances because of two reasons. China says Sri Lanka has promised the IMF that by 2032, the country will reduce the debt ratio, compared to the GDP, to 95 percent. It is now around 140 percent. They are just not ready to accept we can do that,” he said.

Sri Lanka’s Gross Financing Need is 31 percent now, he said. This is one of the highest percentages in the world, de Silva said.

“We have told the IMF that we will reduce this to 13 percent by 2027. China also doesn’t think we can do that. They say they don’t really buy into the debt sustainable analysis that Sri Lanka and the IMF have agreed upon. Their EXIM bank has given us a letter saying that they will provide relief for another 10 months. During that time the two sides can talk about how debt can be restructured,” he said.

However, recently it was reported that there was a loophole that the IMF can use to give us money, De Silva said. That is, if one major lender does not agree on debt restructuring, the IMF can give a loan if the disagreeing lender has loaned less than 50 percent of total bilateral debt, he said.

“Chinese loans were about 53 percent of total bilateral debt. So by considering loans by EXIM bank as bilateral loans and by recategorizing loans by China Development Bank as commercial loans, we have reduced Chinese loan percentage to about 49 percent of total bilateral debt. The government is trying to use that loophole and access IMF money. However, on Wednesday the IMF said that they need Sri Lanka to come to an agreement with China. So this is where we are,” he said. .