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Sri Lanka economists tell government to default on bond, buy food

Sri Lanka economists tell government to default on bond, buy food

$500m should be redirected to pay for fuel, medicine and other essentials, experts say

Sri Lankan rupee banknotes sit in a bucket at a fruit stall in Colombo. The country is running out of imported food, fuel, medicine and a key ingredient of milk tea.   © Reuters

COLOMBO — Sri Lanka’s top economists and business leaders are urging President Gotabaya Rajapaksa’s government to default on a debt repayment next week and to use the nation’s foreign currency reserves to buy fuel, food, medicine and other essentials.

Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka, on Jan. 5 tweeted that the CBSL has allocated $500 million for an International Sovereign Bond maturing on Tuesday. Since the announcement, many experts have come out against the allocation.

Shanta Devarajan, a former World Bank chief economist from Sri Lanka, suggested that the island’s acute shortage of foreign currency reserves is exacerbating everyday problems like long lines to buy cooking gas, rapidly rising food prices, more frequent power outages and a lack of powdered milk, a staple in a hot, tropical country where many homes do not have refrigerators and millions of people thirst for milk tea.

“This $500 million could enable people, especially poor people, to buy and cook food for themselves and their children,” Devarajan wrote in the DailyFT, a Sri Lankan newspaper. “Instead, the government is choosing to reimburse bondholders, who are hardly poor.”

Following a $1.5 billion currency swap with China, Sri Lanka in December managed to boost its reserves to $ 3.1 billion. According to Fitch Ratings, that’s just enough. The agency says Sri Lanka has $3 billion worth of foreign currency debt repayments coming due during the first quarter of this year.

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