According to the rating agency Fitch, the prospect of IMF aid should facilitate negotiations with Sri Lanka’s creditors. But the timing of a debt restructuring agreement is uncertain. The IMF has classified Sri Lanka’s debt burden as unsustainable. Therefore, the outcome of negotiations with Sri Lanka’s creditors, including China, must include debt relief, it said. Negotiations with China are considered particularly difficult. According to experts, China has traditionally offered relief for large loans through deferrals and term extensions rather than write-offs.
But even if Sri Lanka should finally agree with its creditors on debt restructuring, the island state south of India with its approximately 22 million inhabitants faces risks, according to Fitch. She had previously warned that necessary reforms could trigger renewed protests. “Additional social spending may not be enough to deter public opposition,” the agency wrote in its latest statement. Public support for the government of new President Ranil Wickremesinghe appears weak. In addition, the planned consolidation of the state budget will dampen economic growth.
Due to a lack of currency reserves, Sri Lanka became insolvent in May. The population has been struggling with bottlenecks for months, and food prices have risen sharply. Meanwhile, Sri Lanka’s ex-President Gotabaya Rajapaksa returned home after fleeing abroad amid mass protests. He and his family are accused of running the country down through corruption and mismanagement. Rajapaksa is reportedly under special police protection. Opponents are demanding that the state investigate him for mismanagement and corruption.
COLOMBO (dpa-AFX)
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