COLOMBO: Sri Lanka on Wednesday ruled out an IMF bailout and planned more loans, including from China, to deal with its deepening economic crisis – but was quickly hit by a further downgrade in international ratings.
Hours after Colombo announced it was in talks with Beijing for a large loan from China, the island’s largest bilateral lender, S&P Global downgraded Sri Lanka one more notch to CCC from CCC+ . The island’s tourism-dependent economy has been battered by the pandemic, with supermarkets rationing goods and power cuts imposed by power utilities unable to finance oil imports.
S and P Global said the downgrade reflected Sri Lanka’s deteriorating ability to maintain foreign exchange reserves and the higher risk of sovereign default.
“Timely debt servicing is likely to become increasingly difficult over the next 12 months, given Sri Lanka’s vulnerable external profile, large fiscal deficits, heavy government debt and debt payments. high interest,” S and P said in a statement.
Other international rating agencies have also warned of an impending sovereign default on Sri Lanka’s $35 billion external debt as the Treasury battles a crisis in foreign reserves.
Sri Lanka calls for Chinese debt rescheduling amid collapsing economy
But central bank governor Ajith Nivard Cabraal rejected growing calls from local and international economists for an International Monetary Fund bailout and debt restructuring.
“The IMF is not a magic wand,” he told a press conference in Colombo. “At this point, the other alternatives are better than going to the IMF.”
Cabraal added that talks with China over a new loan were at an “advanced stage” and that a new deal would service existing debt to Beijing.
“They would help us make the repayments…the new loan from China is to help amortize our debt repayments to China itself,” he said.
Beijing is already the island’s biggest bilateral lender, accounting for at least 10% of Sri Lanka’s external debt without taking into account loans to Sri Lankan state-owned enterprises.
Cabraal’s remarks come days after a visit by Chinese Foreign Minister Wang Yi, who discussed debt payment restructuring with President Gotabaya Rajapaksa.
Sri Lanka has borrowed heavily from China for its infrastructure in the past, some of which has turned into white elephants.
Unable to repay a $1.4 billion loan to build a port in the south, Sri Lanka was forced to lease the facility to a Chinese company for 99 years in 2017.
The United States and India have warned that the port of Hambantota, located along vital east-west international shipping routes, could give China a military foothold in the Indian Ocean.
Cabraal gave no indication of the amount of the loan requested from China, but said talks were also underway with India for a $1 billion line of credit to fund a wide range of projects. ‘imports.