Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman participated in a high-level Event on Sri Lankan debt issues on the sidelines of International Monetary Fund (IMF)- World Bank (WB) Spring Meetings in Washington D.C today.
Mr. Suzuki Shunichi, Finance Minister of Japan and Mr. Emmanuel Moulin, Director General of the Treasury, France, and Mr. Shehan Semasinghe, State Minister of Finance, Sri Lanka, were present in the meeting. Mr. Ranil Wickremesinghe, President and Minister of Finance of Sri Lanka, participated virtually.
The purpose of the event was to demonstrate the multilateral cooperation regarding the debt restructuring process among the creditors, together with Sri Lanka. In the event, the ministers announced the launch of the debt restructuring negotiation process on Sri Lanka under the three Co-Chairs: India, Japan, and France, to lead coordinated debt restructuring of Sri Lanka.
Union Finance Minister Smt. Sitharaman expressed India’s commitment to support Sri Lanka in dealing with its current economic crisis. She emphasised that a collaboration among creditors is important to ensure transparency and equality in treatment of all creditors in the debt restructuring discussions.
What led to the economic crisis?
The government blamed the Covid pandemic, which badly affected Sri Lanka’s tourist trade – one of its biggest foreign currency earners.
It also said tourists were frightened off by a series of deadly bomb attacks in 2019.However, many experts blame Mr Rajapaksa’s economic policies.
At the end of its civil war in 2009, Sri Lanka chose to focus on providing goods to its domestic market, instead of trying to boost foreign trade.
This meant its income from exports to other countries remained low, while the bill for imports kept growing.
Sri Lanka now imports $3bn more than it exports every year, and that is why it ran out of foreign currency.
At the end of 2019, Sri Lanka had $7.6bn in foreign currency reserves, which have dropped to around $250m.
Mr Rajapaksa also introduced big tax cuts in 2019, which lost the government more than $1.4bn a year in revenues.