Colombo Sri Lanka January 13, ANI Sri Lanka's foreign exchange crisis is compounded by its inability to meet the financial obligations initiated in cooperation with China on several projects.
Sri Lanka is currently grappling with a severe foreign exchange crisis and facing a daunting 2022 deadline to meet the maturity obligations of International Sovereign Bonds ISBx debt of over USD 8 billion in projects, including Hambantota Port, which has forced Colombo to incur losses instead of generate revenue, according to Singapore Post.
The Belt Road Initiative extended commercial loans for infrastructure projects without strict conditionality, normally imposed by multilateral development banks that lured Sri Lanka into the financial crisis.
A recent report from the UNCTAD analyzing Sri Lanka's debt pattern, said that the country has suffered from a lack of long-term finance for manufacturing and infrastructure.
With a liberal trade regime, this resulted in a balance of payment crisis, currency devaluation and dependence on foreign loans. Singapore Post reported that sovereign bonds repayments can't be easily negotiated or restructured, which is causing unasiness among policymakers.
The Sri Lankan government is relying on China for all kinds of support. After the fertilizer ban, it relied on the import of Chinese organic fertilizers. Quality and contamination issues entangled this into controversy. China pressured the Sri Lankan government to pay USD 7 million as an out-of-court settlement as compensation amidst the forex crisis, as noted by Singapore Post.
The crisis forced the Sri Lankan government to announce a new economic relief package of USD 1.2 billion for the agitating farmers and general public, including government employees and pensioners.