Sri Lanka not paying to Asian Development Bank, PM says

ECONOMYNEXT – Sri Lanka missed a payment to the Manila-based Asian Development Bank, blocking new funds. Prime Minister Ranil Wickremesinghe has said amid warnings that the currency crisis gripping the country could be barred from multilateral funding in a new coup.

The Asian Development Bank and the World Bank also continued to fund Sri Lanka by reallocating loans after the country was cut off from capital markets during its downgrade to CCC.

World Bank ADB had just pledged about 160 million each to Sri Lanka, Wickremesinghe said, but the Manila-based lender’s loan was blocked.

“But because we couldn’t repay three million US dollars last month, it’s stalled,” Wickremesinghe said.

“We are finding money for it.”

Multilateral disclaimer

Sri Lanka now faces the prospect of being kicked out of multilateral agreements, if their reimbursements are not maintained.

“If we don’t pay the IMF (International Monetary Fund), the World Bank, that money won’t come either,” said former finance minister Ali Sabry.

“That is the problem. As the Prime Minister said, some payments are due to the AfDB. This is a very big problem.”

Sri Lanka has already suspended repayments of international sovereign bonds, commercial bank loans, exim bank loans and bilateral loans.

But multilateral lenders, as senior creditors, are excluded.

“We decided on April 12 that we wouldn’t pay the ISBs and everyone but the multilaterals,” Sabry said.

“We did this because we had no choice. On the 18th (April), we had to pay 78 million dollars and we had to pay 105 million US dollars to a Chinese bank. We announced and defaulted.

Sri Lanka is currently negotiating a loan with the IMF. In 2022, Sri Lanka had to pay US$106.34 million by April US$12.4 million had been paid.

“Whether the payment is a billion or 10 billion, we don’t have a million to pay,” Wickremesinghe said, promising to provide statistics to parliament soon.

Sri Lanka had US$7,139 million in the year as of March 2022. As of April, US$250 million was made up of US$145 million principal and US$106 million interest.

Opposition lawmaker Harsha de Silva said there was now about $5.5 billion to be paid over the next 12 months, and $2.5 billion was suspended, leaving about $3.0 billion to be repaid.

Sri Lanka’s central bank is also highly indebted and owes money to the IMF, Reserve Bank of India and swap counterparties.

Sri Lanka was hit by chronic currency instability from 2015 to 2022 as money was printed to keep interest rates low under “flexible inflation targeting” and ” targeting the output gap,” triggering three currency crises, excessive foreign borrowing, and eventual default.

Sri Lanka now faces the worst monetary crisis created by its 72-year-old loosely pegged central bank.

An attempt to switch to a floating exchange rate has so far failed due to a buy-back rule, although interest rates have been raised to slow domestic credit and halt or reduce printing monetary.

While monetary stability has yet to be restored, the authorities are now seeking US$3-4 billion in “bridge financing”.

Money will have to be printed to pay the salaries of state employees, Prime Minister Wickremesinghe said, which will likely trigger more foreign exchange shortages. (Colombo/May 18/2022)

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