Sri Lanka’s creditors demand deal details; Fitch downgrades Maldives, warns of default
by AFP Staff Writers
Colombo (AFP) June 27, 2024
Sri Lanka’s bilateral lenders who agreed to restructure close to $6 billion in loans have demanded “comparability of treatment” with other creditors, including China.
The Official Creditor Committee (OCC), led by Japan, France and India, have requested details of Colombo’s other debt deals, a statement seen by AFP on Thursday read.
The grouping agreed in Paris on Wednesday to restructure $5.8 billion in loans.
But on the same day, Colombo struck another deal with the Exim Bank of China to cover $4.2 billion.
The OCC, which also included the United States, Canada and several European nations, said it had asked Colombo to provide “all information necessary for the OCC to ensure comparability of treatment”.
It also expected Colombo to strike a deal with private creditors “on terms at least as favourable” as the OCC had offered.
Sri Lanka defaulted on its foreign debt in April 2022 after running out of foreign exchange, and the unprecedented economic crisis forced then-president Gotabaya Rajapaksa to step down.
Sri Lanka had expected to rapidly conclude debt restructuring in line with a $2.9 billion IMF bailout programme, but delays in securing an agreement with China had held up the process.
Beijing is by far the largest single creditor of Sri Lanka, but Chinese funding is split into concessionary bilateral loans and private commercial credit.
While $4.2 billion of Chinese bilateral credit had been treated under debt restructuring on Wednesday, there was no word on a $2.18 billion loan from the China Development Bank considered a private commercial loan.
Sources involved with the process said the CDB loan was likely to be treated on par with the $12.55 billion International Sovereign Bonds, on which negotiations continue.
Sri Lanka’s total foreign debt was estimated at $37 billion, according to treasury data from the end of March.
China accounts for $4.66 billion of a total of $10.58 billion in bilateral debt, followed by Japan with $2.35 billion, and India with $1.36 billion.
Ratings agency Fitch downgrades Maldives, warns of default
Male, Maldives (AFP) June 26, 2024 -
International credit rating agency Fitch downgraded the Maldives Wednesday and warned that South Asia’s tourist paradise could be headed for a sovereign default on its foreign loans.
The downgrade came six weeks after the IMF warned the Maldives against a looming “debt distress”, as the small but strategically placed luxury tourist destination looks set to borrow more from its main creditor China.
Fitch bumped the archipelago down one spot to ‘CCC+’ from ‘B-‘ on its ratings metrics, reflecting risks associated with dwindling foreign currency reserves that dropped to $492 million in May, the agency said in a statement.
It said the government’s debt servicing obligations, amounting to $409 million this year, would add to severe stress.
Since winning office last year, President Mohamed Muizzu has reoriented the atoll nation — known for its upmarket beach resorts and celebrity vacationers — away from traditional benefactor India and towards China.
In April, his party won parliamentary elections in a landslide after promising to build thousands of apartments, reclaim more land for urban development and upgrade airports, all with Chinese funding.
Fitch said its baseline assumed the Maldives will continue to rely on bilateral and multilateral financing support.
The country could leverage its “geopolitical strategic importance and the expectation of future policy actions by the new government” to raise funding, the ratings agency said.
Maldives is a small nation of 1,192 tiny coral islets scattered 800 kilometres (500 miles) across the equator, but it strategically straddles key east-west international shipping routes.
China has pledged more funding since last year’s victory by Muizzu, who thanked the country for its “selfless assistance” for development funds on a state visit to Beijing shortly after he took power.
Official data showed the Maldives’ foreign debt reaching $4.038 billion last year, about 118 percent of gross domestic product and up nearly $250 million from 2022.
As of June 2023, the Export-Import Bank of China owned 25.2 percent of the Maldives’ external debt and was the country’s biggest single lender, Maldives finance ministry figures showed.
Sri Lanka seals debt deal with China, others after crash
Colombo (AFP) June 26, 2024 -
Sri Lanka said on Wednesday it had clinched a restructuring deal with key bilateral lender China and other nations, covering up to $10 billion in debt, a critical step towards recovery after a 2022 financial crash.
The agreement is expected to revive stalled infrastructure projects, including a Japanese-funded airport expansion and a new mass transit light rail in the capital, President Ranil Wickremesinghe said.
Sri Lanka defaulted on its foreign debt in April 2022 after running out of foreign exchange, and the unprecedented economic crisis forced then-president Gotabaya Rajapaksa to step down.
“Sri Lanka concluded negotiations with the Official Creditor Committee (OCC) and the Exim Bank of China,” Wickremesinghe said in a televised Sinhalese-language address to the nation.
“Sri Lanka won,” he added in English while thanking the OCC, which included Japan, India, the United States, Canada and several European nations.
He said the deal with OCC nations was reached in Paris, while an agreement with the Exim Bank of China was signed in Beijing on Wednesday.
Sri Lanka secured a moratorium on repayments until 2028, he said, but gave no further details.
His supporters in the capital Colombo let off firecrackers and distributed milk rice in celebration as he spoke.
Wickremesinghe said the nation was bankrupt when he took over almost two years ago and he hoped the International Monetary Fund bailout of $2.9 billion he secured last year would be the island’s last.
Colombo had gone to the IMF, the international lender of last resort, on 16 previous occasions and the debt restructuring is a condition of the IMF bailout.
Wickremesinghe has doubled taxes, removed generous energy subsidies and is set to sell off loss-making state enterprises to shore up state revenue under that deal.
– Teachers strike over pay –
Neighbouring India welcomed Sri Lanka’s deal and pledged more support.
“This milestone (agreement) demonstrates the strong progress made by Sri Lanka in stabilising its economy and moving towards reform and growth,” the Indian government said in a statement.
Bilateral creditors account for 28.5 percent of Sri Lanka’s outstanding foreign debt of $37 billion, according to treasury data from the end of March.
China accounts for $4.66 billion of a total of $10.58 billion borrowed from other countries.
Japan accounts for $2.35 billion and India for $1.36 billion.
The government said it was in talks with international bondholders but there was no agreement. A previous round of talks ended in deadlock in April.
Sri Lanka is unable to raise commercial loans until a deal with private creditors is struck.
However, the agreement with bilateral creditors allows the unfreezing of loans for ongoing infrastructure projects financed with funding from other countries.
Thousands of teachers from government schools went on strike in Colombo on Wednesday demanding higher pay, with police using water cannon and tear gas to disperse the protest.
Sri Lanka is due to hold a presidential election this year and opposition parties have vowed to renegotiate the terms of the IMF bailout.
The IMF’s Sri Lanka mission chief Peter Breuer said the fund was willing to listen to alternative proposals from rival political parties, but said it was necessary to stick to the benchmarks set in the bailout.
Sri Lanka had made good progress but was not out of the woods yet, he said.
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