UN asks Sri Lanka to barter ‘debt-for-nature’ swaps to ease financial meltdown

The UN has requested Sri Lanka to introduce a brief primary earnings and negotiate “debt-for-nature” swaps tied to environmental conservation as a part of measures to mitigate the nation’s financial meltdown, as Colombo begins talks with the IMF.

The UN Development Programme made the proposals in a doc seen by the Financial Times that was submitted to President Gotabaya Rajapaksa’s authorities and that might be reviewed by the cupboard that was sworn on this week.

Sri Lanka’s lack of overseas change has left the debt-laden island of 22mn unable to repay its loans, triggering an financial and political disaster with mass protests over shortages of meals, gasoline and medication. Rajapaksa has confronted sustained calls to resign.

The authorities, which has about $8bn of debt and curiosity due this 12 months on usable overseas reserves estimated as little as a number of hundred million {dollars}, has suspended bond funds and begun negotiations for an IMF bailout.

A Sri Lankan authorities delegation travelled to Washington this week to start talks with the fund over an help bundle anticipated to incorporate debt restructuring.

The UNDP argues that Sri Lanka, which owes about $45bn in long-term debt to collectors that embody worldwide bondholders and international locations akin to India and China, wants speedy monetary help whereas the IMF talks are below means.

The UN physique has requested Sri Lanka to pursue swaps and short-term financing from international locations together with India, China and Bangladesh to alleviate financial ache forward of IMF help.

“The IMF package, if it comes in, that is going to be an austerity package,” Kanni Wignaraja, the UNDP’s Asia director, informed the FT. “So the government will have to, and they are considering very much, supporting the most vulnerable households with an immediate social protection flow.”

Among the UNDP’s requests is that Rajapaksa’s authorities introduce a brief primary earnings, which might take the type of an unconditional money switch to working-age Sri Lankans for a interval of about six to 9 months. Similar programmes have been carried out in Kenya and the US state of Alaska.

“It’s something that has been tried and tested,” Wignaraja mentioned. “There’s obviously a cost to bear, but it has been found to be more efficient than some of these very heavy social protection measures.”

The company has additionally requested Sri Lanka to pursue bonds or debt swaps linked to environmental and social sustainability, akin to debt-for-nature offers wherein some loans are forgiven in change for funding in environmental conservation.

Similar measures have been launched in international locations akin to Costa Rica, and Wignaraja argued that Sri Lanka — famed for its seashores, forests and mountains — was well-placed to faucet such schemes.

We’re “moving quite aggressively to see if the debt-for-nature swaps can be a big part of [a deal]. We’ve got to reduce our debt burden, not just keep restructuring it,” she mentioned. “Sri Lanka has amazing natural resources that they can put [up] to draw down the debt.”

Sri Lanka is Asia’s largest issuer of high-yield debt however was locked out of personal markets and rendered unable to refinance after score downgrades sparked by sharp tax cuts in 2019 and the lack of tourism in the course of the pandemic.

Dwindling overseas change reserves left the import-dependent island with shortages and extreme inflation. Food and gasoline costs have doubled whereas the foreign money has fallen 60 per cent because it was floated final month.

Rajapaksa’s authorities had for months resisted worldwide calls to restructure or strategy the IMF earlier than a U-turn final month triggered by widespread protests adopted by the resignation of his cupboard. A protester was killed after police opened fireplace on crowds within the city of Rambukkana on Tuesday.

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