To avoid default
Relations with US-led multilateral lender strained by past misadventures
President Gotabaya Rajapaksa’s government desperately needs cash to service over $15 billion dollars owed to foreign creditors. China eased some of the tension earlier this year by injecting $500 million as part of a $1.2 billion syndicated loan from the China Development Bank.
“We have been in touch with the China Development Bank,” Nivard Cabraal, minister of money and capital market and state enterprise reforms, told Nikkei Asia. “We are now negotiating the additional $700 million.”
The second tranche is wanted for the end of the year. “There are options available for Sri Lanka to have inflows coming in from our bilateral partners, and we are confident that they will materialize,” said Cabraal, who was governor of the Central Bank of Sri Lanka for nearly nine years until 2015.
“If we have to go and hold the IMF’s hand — or if the IMF has to hold our hand — that, I think, is a danger signal,” he said. “We know we have to get our debt situation under control. Do we need the IMF to say that? No.”
Sri Lanka’s efforts to borrow more have been thwarted by downgraded ratings. Bonds were reduced to junk status after Moody’s Investors Service recently downgraded the country two notches from B2 to Caa1. It was another blow to the anemic economy, which is facing growth of just 0.5% in the wake of COVID-19. In April, Fitch Ratings downgraded the country to B1 with a negative outlook.