Spotlight: Econ Op-eds in Summary (Week ended 5th January '21)
1. Forget Fitch, the reality is resolving the forex crisis
By Dinesh Weerakkody
Sri Lanka’s credit ratings were reduced to ‘CC’ by Fitch, in December due to worsening external liquidity position, drop in foreign exchange reserves and high debt payments. While this was challenged by CBSL, credit ratings go by global standards and many institutional investors become unable to invest in countries below a certain credit rating (below CCC-).
Sri Lanka’s ability to meet its debt obligations had been questioned in the absence of external financing sources. However, Finance Minister Basil Rajapaksa has told Parliament that the country will not default on its debt repayments in 2022 despite being faced with a severe foreign reserve crisis.
Amidst these conditions, the Cabinet is seriously contemplating IMF support. An IMF program would certainly help to unlock concessionary multilateral and bilateral financing, but the IMF would want serious restructuring to bring about future debt sustainability.
2. Tangled diplomacy of Sri Lanka’s currency crisis
By Dushni Weerakoon
Sri Lanka ended 2021 with foreign currency reserves to support a month of imports. The luring foreign reserve crisis is like that of 2009. The state has avoided approaching the IMF on both occasions. Unlike 2009, this time, Sri Lanka has considerably high foreign debts to be settled in the foreseeable future.
Government’s reluctance to approach IMF lures mainly around the statutes. Yet, they have failed to put forward a credible policy which addresses the solvency weakness. However, the state is still hedging government to government deals with various countries.
These alternative arrangements have been diplomatic headaches in terms of China and India. The weaker position of Sri Lanka in negotiations is affecting the government’s credibility on various levels. A quicker inflow of FDIs and effective policy strategies will not save the universal sacrifice Sri Lankans are to do in the year to come.
(Compiled by: Promodhya Abeysekara, Malik Nazahim & Mariyan Perera)
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