Foreign debt details; owes $35 bln in total, $7 bln to China

November 04, 2022Author - Editor

Sri Lanka has released the official data on its outstanding foreign debt as the island nation is in the process of discussing with creditors for debt restructuring the loans to qualify for $2.9 billion, 4-year International Monetary Fund (IMF) loan.

The latest sovereign debt defaulted nation in the world owes $35 billion in total which includes bilateral, multilateral, and commercial loans as of June 30, this year, the official data showed.

The $84.5 billion economy, which is now in a deep economic crisis, has to repay outstanding debt of $10.9 billion via bilateral loans, $9.3 billion via multilateral, and $14.8 billion through commercial loans, the data released by the country’s treasury showed.

President Ranil Wickremesinghe’s government has been struggling for accurate data on foreign debts because some of the sovereign guaranteed debts have been concealed in state-owned enterprises’ accounts by past governments to underestimate the total foreign debt, government officials have told Economy Next.

Sri Lanka’s outstanding debt to China, its top lender since the end of a 26-year civil war, is nearly $7 billion or nearly 20 percent of the total outstanding foreign debt. China accounts for 43 percent of the total bilateral loans, the data showed.

China was earlier blamed for dragging Sri Lanka into a debt trap because of higher commercial loans it has given to the Indian Ocean Island without assessing project viability and return on investment. China has rejected such allegations.

Some of the Chinese loans were given Sri Lanka to help the country which ran into currency crises under ‘flexible inflation targeting’ with output gap targeting, probably the deadliest dual anchor conflicting monetary regime ever peddled to third world nations, and lost the ability to repay foreign loans or make trade payments.

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Sri Lanka also borrowed heavily through sovereign bonds during serial currency crises and also deliberately through an ‘active liability management law’ instead of maintaining monetary stability and repaying debt by maintaining an appropriate domestic interest rate.

In 2022 India similarly gave loans instead of forcing economists in the country to raise rates, which the IMF has done.

State-run Ceylon Petroleum Corporation also borrowed so-called ‘cover up loans’ or bridging finance as monetary instability worsened under flexible inflation targeting.

The island nation has suspended all the foreign debt repayments since April 12 this year because it run out of foreign currency reserves and no offshore lender was willing to give money.

Under bilateral loans, Japan has to be repaid 24 percent or 2.6 billion of the total bilateral loans and India has to be paid back for 14 percent or $1.49 billion.

Under the multilateral loans, the Asian Development Bank has accounted for 55 percent or $5.11 billion outstanding foreign debts.

Sri Lanka has started discussions with its creditors to restructure its foreign debts and final agreement on a debt restructuring with each individual creditor is a must for the IMF Executive Board approval for $2.9 billion loan.

Sri Lanka government officials have told EconomyNext that the timing of the IMF loan disbursement will be mainly depending on China’s decision on its bilateral and commercial debt restructuring modalities.