The group of experts, which includes Indian economist Jayati Ghosh, Thomas Piketty, author of the best-selling book Capital in the 21st Century, and former Greek Finance Minister Yanis Varoufakis, said private creditors had reached an agreement in the negotiations on prevent debt relief for crisis-ridden Sri Lanka, the Guardian quoted from a Sunday report.
The country signed a tentative agreement for a $2.9 billion bailout with the International Monetary Fund (IMF) in September, but it needs to get its debt on track before disbursements can begin. Only a comprehensive debt relief could give the economy a chance to recover, the experts now explained.
“All lenders – bilateral, multilateral and private – must share the burden of the restructuring and receive pledges of additional funding in the near future.” However, some of the most influential hedge funds and other investors are preventing Sri Lanka from receiving vital aid. “Sri Lankan debt negotiations are now at a crucial stage,” the Guardian quoted the statement as saying.
Population suffers from inflation
For months, the population has been suffering from a lack of food and fuel and immense inflation. The loss of tourism and remittances to the pandemic, along with an ill-timed tax cut, sent Sri Lanka into a crisis in early 2022 after its foreign exchange reserves dried up, leaving the country with insufficient dollars to pay for fuel, food, cooking gas and medicines . For months, the country of 22 million people was hit by hour-long power outages and fuel shortages.
In addition, as the foreign exchange shortage worsened in 2021, the government banned the import of chemical fertilizers, leading to crop failures. The government also refused IMF assistance, which dwindled foreign exchange reserves and worsened fuel and medicine shortages. The big tax cuts passed by former President Gotabaya Rajapaksa in 2019 cost the state more than $1.4 billion annually, according to the BBC.
According to the UN, the high world market prices for grain, which have risen sharply as a result of the Russian war of aggression against Ukraine, aggravated the situation. In mid-April, the island nation declared itself insolvent because of the immense debts abroad and stopped paying interest and repayments for the time being. Fuel is still rationed, but there is an exception for the tourism sector.
Dealing with Sri Lanka also important for the rest of the world
The organization Debt Justice warned that other countries besides Sri Lanka have also defaulted since the pandemic began and are seeking debt restructuring. “With interest rates rising globally and widespread recessions expected in 2023, many more countries could follow,” Debt Justice told the Guardian. Two-thirds of low-income countries are also at risk of default.
The way the world community is dealing with Sri Lanka is also an important indicator of whether the international financial system is able to deal with the “increasingly urgent issues of debt relief and sustainability and to ensure a minimum level of justice in international debt negotiations,” he said “Guardian” the 182 economists and development experts.
“It is therefore vital not only for the people of Sri Lanka, but also for restoring confidence in a multilateral system that is already under attack for its lack of legitimacy and basic functioning.”
Trade agreement for economic reconstruction
Last week, Sri Lanka announced it was resuming trade deal negotiations with India, China and Thailand after a four-year hiatus to help rebuild the economy. Negotiations with India and China, Sri Lanka’s largest trading partners with a bilateral trade volume of around US$5 billion each in 2021, are expected to start in February and March.
FTA talks with China, the island’s largest bilateral lender, also stalled in 2018 over disagreements over the pace of liberalization of Sri Lanka’s economy, said KJ Weerasinghe, Sri Lanka’s chief FTA negotiator. Both countries have responded positively to the resumption of talks, but specific dates have yet to be set, Weerasinghe added.
First elections planned since the ex-president fled
According to the authorities, local elections are to be held before the end of February after being postponed by a year due to the CoV pandemic. The elections are seen as a mood test for incumbent President Ranil Wickremesinghe. He had succeeded former President Rajapaksa, against whom there had been violent protests with deaths across the country last year. Rajapaksa then fled the South Asian island nation.
