{"id":82203,"date":"2023-06-26T00:27:16","date_gmt":"2023-06-26T04:27:16","guid":{"rendered":"https:\/\/dbsjeyaraj.com\/dbsj\/?p=82203"},"modified":"2023-06-26T19:11:12","modified_gmt":"2023-06-26T23:11:12","slug":"sri-lanka-to-shut-down-its-banks-and-financial-sector-for-five-days-from-june-29-ahead-of-an-extraordinary-weekend-debate-in-parliament-on-the-governments-plan-to-restructure-its-domestic-de","status":"publish","type":"post","link":"https:\/\/dbsjeyaraj.com\/dbsj\/?p=82203","title":{"rendered":"Sri Lanka to shut down its banks and financial sector for five days from June 29 ahead of an extraordinary weekend debate in Parliament on the government\u2019s plan to restructure its domestic debt."},"content":{"rendered":"


\nBy
\nMeera Srinivasan<\/strong><\/p>\n

Sri Lanka will shut down its banks and financial sector for five days beginning Thursday, ahead of an extraordinary weekend debate in Parliament on the government\u2019s plan to restructure its domestic debt.<\/p>\n

The move comes a year after Sri Lanka decided to suspend servicing its foreign debt, to combat a devastating economic meltdown \u2014 the country\u2019s worst since Independence. The government subsequently entered an agreement with the International Monetary Fund and secured a nearly $3 billion-dollar package from it, while agreeing to restructure both its foreign and domestic debt that the Fund estimated at about $41 billion and $42 billon respectively, as of March 2023.<\/p>\n

In May, the IMF pointed to \u201ctentative signs of improvement\u201d in Sri Lanka, while underscoring the need for timely restructuring agreements with the island\u2019s creditors ahead of the Fund\u2019s first review scheduled in September.<\/p>\n

<\/p>\n

Spelling out the government\u2019s plan to state-owned French media during his recent visit to Paris, President Ranil Wickremesinghe said Sri Lanka\u2019s debt restructuring programme will be presented to the Cabinet on Wednesday. \u201cIt will go to Parliament on Friday, before the public finance committee, and Saturday and Sunday it will be debated in Parliament and will be approved by Parliament. Thereafter, we can start the rest of the negotiations with our creditors,\u201d he said in the interview broadcast on Monday.<\/p>\n

Sri Lanka was looking at obtaining a longer timeframe to repay its loans, as well as \u201csome form of reduction\u201d, Mr. Wickremesinghe said, hinting at a haircut.<\/p>\n

China\u2019s role<\/strong><\/p>\n

Sri Lanka\u2019s negotiations with bilateral creditors are ongoing. On May 9, 2023, a total of 17 countries joined an \u201cofficial creditor committee\u201d, co-chaired by India, Japan, and France, to discuss Sri Lanka\u2019s request for debt treatment. The committee includes Paris Club creditors as well as other official bilateral creditors. China attended the meeting as an observer and is yet to formally join the committee.<\/p>\n

India has repeatedly emphasised creditor parity among bilateral lenders \u2014 Japan and the Paris Club have echoed the sentiment \u2014 while China has demanded that multilateral creditors be brought into the same process. Meanwhile, it remains to be seen how private creditors, who hold the largest chunk of Sri Lanka\u2019s foreign debt by way of International Sovereign Bonds, will participate.<\/p>\n

With bilateral creditors waiting for China to come on board, and China\u2019s insistence that multilateral creditors be subject to the same treatment, Sri Lanka\u2019s foreign debt restructure process appears effectively deadlocked for the moment.<\/p>\n

However, Mr. Wickremesinghe in his interview said, \u201cWe are confident of China coming along with the others\u201d, referring to Chinese Premier Li Qiang\u2019s \u201cpositive message\u201d at the Paris financial summit.
\n\u201cChina is ready to be engaged in debt relief efforts in an effective, realistic and comprehensive manner in keeping with the principle of fair burden sharing,\u201d Mr. Li was quoted as saying at the forum.<\/p>\n

China\u2019s role in Sri Lanka is closely watched, especially after China\u2019s recent nod to participate in Zambia\u2019s debt restructure plan. Sri Lanka\u2019s Foreign Minister Ali Sabry is currently in China on a week-long visit and so far, there is no official word on China\u2019s position on Sri Lanka\u2019s debt relief request.<\/p>\n


\nDomestic debt<\/strong><\/p>\n

Meanwhile, the government\u2019s move on restructuring its domestic debt has set off concern among many, who raise its potential impact on people\u2019s savings and retirement benefits. \u201cWe don\u2019t know the specifics of the government\u2019s plan yet, but, in principle, we have been opposed to restructuring domestic debt,\u201d said Eran Wickramaratne, a legislator from the Opposition Samagi Jana Balawegaya (SJB) and former State Minister of Finance. <\/p>\n

\u201cRestructuring domestic debt could mean there is an extension of tenure or maturity, an interest rate or coupon adjustment or a haircut. Although the [rate of] inflation has reduced now, prices are still largely the same. The value of people\u2019s savings has gone down tremendously,\u201d explained Mr. Wickramaratne, who is also a former banker. Domestic lenders taking a haircut could adversely affect the elderly, by impacting benefits such as Employees\u2019 Provident Fund, Trust Fund and pensions, government critics contend.
\nMeanwhile, all creditors should help Sri Lanka with its debt restructuring plan, Mr. Wickramaratne noted. \u201cThe bond investors [private creditors] who enter this high-risk scene intentionally, got higher returns in the past ten years. If they were ready for the upside, they should take the downside, too,\u201d he said. <\/p>\n

Courtesy:The Hindu<\/em><\/p>\n

Tweet<\/a><\/div>","protected":false},"excerpt":{"rendered":"

By Meera Srinivasan Sri Lanka will shut down its banks and financial sector for five days beginning Thursday, ahead of an extraordinary weekend debate in Parliament on the government\u2019s plan to restructure its domestic debt. The move comes a year after Sri Lanka decided to suspend servicing its foreign debt, to combat a devastating economic …<\/p>\n

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