Solve Dollar Crisis Fast

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The country faces the risk of enhanced blackouts next month due to the possibility of the selected coal supplier, by tender, allegedly defaulting on their contract in fears of non-payment of dues. (Ceylon Today’s Friday’s edition)

The supplier first wants legal assurance that they will receive payment for their supply before shipping coal to Colombo.

This is but one of a series of malaise facing the country after it defaulted on its debt repayments five months ago, in April 2022, but the Government of Sri Lanka (GoSL) is still restructuring its debt, a mandatory requirement by the IMF to obtain a US$ 2.9 billion loan.

While all other creditor countries have agreed to debt restructuring, the thorn in the flesh however is China, which is vague about restructuring, an exercise that may include ‘haircuts’, extended loan tenures and a knockdown on the previously agreed upon borrowing costs.

There are fears that China, instead of debt restructuring, is expecting to foreclose for debt default, similar to their ‘loan to land’ swap on the US$ 2.9 billion Chinese-built Hambantota Port, constructed during the Mahinda Rajapaksa era sans tender call, borrowed in a mix of commercial and ‘concessional’ terms with interest costs ranging from 6.3 – 6.5 per cent and two per cent respectively and subsequently given to China on a 99-year lease in exchange for $ 1.18 billion in cash in 2017.

 According to ‘The People’s Map of Global China’, an INGO funded by the Centre for East and South-East Asian Studies Lund University  and Raoul Wallenberg Institute of Human Rights and Humanitarian Law, Sweden, Global China Centre at the Hong Kong University of Science and Technology and the Australian Centre on China in the World at The Australian National University, in 2017, then, Ports and Shipping Minister Mahinda Samarasinghe (now Ambassador to USA), at the request of Premier Ranil Wickremesinghe (now President) suggested to  China that they reschedule or delay the receipt of payment,  which was refused, resulting in the above ‘loan to land’ swap.

What Sri Lanka lacks is skilled negotiators, skilled to the extent of negotiating a debt restructuring agreement, similar to the successful negotiation of the Rubber-Rice Pact with China that took place 70 years ago in 1952 at the Sri Lanka’s High Commission in the UK, as China had no embassy, let alone a consulate in Sri Lanka or Ceylon, as it was then known.

The possible reneging of the above coal contract by the supplier, thereby plunging Sri Lanka into darkness, is but a foretaste of things to come. For instance, the price of cooking gas, a by-product of natural gas, is bound to increase in the coming weeks with the onset of winter in the Northern Hemisphere, compounded by Russia cutting off gas supplies to the West due to the Ukrainian war, causing another knockout blow to the country.

Therefore, Sri Lanka will not only not have US dollars to buy coal, but also cooking gas as well, plunging the country into a graver political and socioeconomic crisis than that which was witnessed on 9 May or 9 July.

As it is, due to increased poverty because of record high inflation, over a million schoolchildren have been added on to the midday meal project, over and above the previous million, bringing the number of children needing midday meals, due to new numbers being entered into the poverty list, to at least two million. This discounts schoolchildren who are shying away from school because of hunger, while several of those who still attend, faint due to the lack of food. Consequently, schools have appealed to the ‘haves’ schoolchildren to bring extra food for their midday meal, so that those could be shared with the ‘have-nots’.

Adding fuel to the fire, the reallocation of existing aid from the World Bank and the ADB being re-channelled for humanitarian aid is fast coming to an end, with no other money being made available to the country afterwards, unless  the IMF deal is struck.

Wickremesinghe, instead of appointing new State Ministers, thereby further causing strains on the already strained exchequer, needs to solve Sri Lanka’s dollar crisis fast, as his first, second and third priorities.