Crisis-hit Sri Lanka's finance minister says no alternative to debt restructuring

[April 08, 2022]  By Uditha Jayasinghe and Devjyot Ghoshal

COLOMBO (Reuters) - Sri Lanka's finance minister on Friday said that the crisis-hit country must urgently restructure its debt and seek external help, while the main opposition threatened a no-confidence motion and business leaders warned that exports could plummet.

The heavily indebted country has little money left to pay for imports, leading to crippling shortages of fuel, power, food and, increasingly, medicine. Street protests have been held nearly non-stop for more than a month, despite a five-day state of emergency and a two-day curfew.

"We cannot step away from repaying debt because the consequences are terrifying. There is no alternative, we must restructure our debt," Ali Sabry told parliament.

A repayment of $1 billion is due in July. J.P. Morgan analysts estimate that Sri Lanka's gross debt servicing costs will amount to $7 billion this year in total.

"We have to go for a debt moratorium," said Sabry, who offered to quit a day after he was appointed on Monday but later confirmed that he was still the finance minister.

"We have to suspend debt repayment for some time and get bilateral and multilateral support to manage our balance of payments."
 

President Gotabaya Rajapaksa is running his administration with only a handful of ministers after his entire cabinet resigned this week, while the opposition and even some coalition partners rejected calls for a unity government to deal with the worst crisis in decades.

At least 41 lawmakers have walked out of the ruling coalition to become independents, though the government says it still has a majority in parliament.

"The government needs to address the financial crisis and work to improve governance, or we will move a no-confidence motion," Sajith Premadasa, leader of the Samagi Jana Balawegaya opposition group, said in parliament.

"It is imperative that Sri Lanka must avoid a disorderly debt default. The government must work to suspend debt and appoint financial advisers to start off the process of restructuring debt."

Parliamentary proceedings were suspended twice in the morning as rivals heckled each other, with two members temporarily removed from the chamber on the orders of the speaker.

'CANNOT WAIT'

Sabry, a former justice minister, said political stability was necessary as the country prepared to start talks with the International Monetary Fund (IMF) this month.

Sajith Premadasa, leader of the opposition alliance, Samagi Jana Balawegaya, marches along with other opposition lawmakers towards Independence Square as they shout slogans against President Gotabaya Rajapaksa after the government imposed a curfew following a clash between police and protestors near Sri Lankan President Gotabaya Rajapaksa's residence during a protest last Thursday, amid the country's economic crisis, in Colombo, Sri Lanka April 3, 2022. REUTERS/Dinuka Liyanawatte

"This is not a time for politics," he said. "We cannot wait, we must move immediately."

Earlier on Friday, nearly two dozen associations, representing industries that collectively employ a fifth of the country's 22 million people, together urged the government to quickly seek financial help from the IMF, the World Bank and the Asian Development Bank (ADB).

"We need a solution within weeks or the country will fall off the precipice," Rohan Masakorala, director-general of the Sri Lanka Association of Manufacturers And Exporters of Rubber Products, told a news conference.

Masakorala said that both merchandise and service exports could drop 20%-30% this year due to a dollar shortage, higher freight costs and power cuts.

"We are pushing the government and opposition to establish political stability as soon as possible and give us a way forward," Masakorala said. "IMF should have happened yesterday."

Sri Lanka's foreign exchange reserves have plunged some 70% in the past two years, hitting $1.93 billion at the end of March.

Inflation, meanwhile, has rocketed to its highest level in more than a decade, and on Friday evening, the Central Bank of Sri Lanka is expected to raise key interest rates by as much as 400 basis points (bps) following a 100 bps rise in early March.

The government has secured credit lines and currency swaps of billions of dollars from India and China but industry leaders say it needs to do more, urging the central bank governor to start negotiations urgently.
 

"The Indian credit lines will only last until end-April," said Russell Juriansz, chairman of the Sri Lanka Shippers' Council.

"We appeal to the president to take the right decision or it will haunt him for the rest of his life."

(Writing by Krishna N. Das; Editing by Muralikumar Anantharaman, Raju Gopalakrishnan and Hugh Lawson)

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