Nivard Cabraals foreign reserves announcement is just a number magic

Loans cannot be settled or import goods from Chinese Yuan

(By Rajith Keerthi Tennakoon-translated by Rumi Speelberg)

The SAWP facility worth $ 1.5 billion granted by China is nothing more than a magic trick which cannot be untiled pay off debts or import goods. Even though the Government is trying to make headlines in the media that it has managed the dollar crisis, all those are just meaningless words and not a reality which can be revealed to the people and the country in January 2022.

This grant by China cannot be exchanged to dollars and just a number magic with a condition of re-investing in Chinese government bonds (Book Entry). According to the condition of granting Yuan by China to Sri Lanka that amount should be re-invested on China’s Treasury bills

The facility cannot be used for any other transaction than the one with China. Though Sri Lankan government has requested to convert the grant into dollars and to use to repay loans and investments, this has not yet been approved yet.

By January 2022, Sri Lanka has to repay $ 1380 million as loans and interest. A $ 500 million which should be paid for International Sovereign Bonds dated on January 18, 2022, and the balance as loans and interest payable to institutions including the Asian Development Bank and the World Bank. At present, the non-gold reserves remain at $ 1,000 million. By now all non-essential imports in the country have been suspended.

At present the Government is seeking a $ 400 million transfer from India. This transfer will be released after signing of the agreement on the Trincomalee oil tanks. According to the amount of the reserves, if the transfer of China or India cannot be converted to dollars, Sri Lanka will become a bankrupt country which defaulted to pay loans.

The International Monetary Fund and India are currently discussing about Sri Lanka, which is similar to the discussion took place on relief operation carried out by Germany to rescue Greece from the bankruptcy.

In an increase in formal reserves, it should be possible to transfer (01) those reserves to another party and (02) use them for importing goods. But there is no opportunity to pay off debts or import using the Chine’s transfer. China is currently using its currency to prevent (01) debt repayment and (02) imports of non-Chinese goods (oil, gas, coal, fertilizer and medicine, etc.). Hence a solution cannot be gained from this number magic for the January 2022 debt crisis.

That is why Governor of the Central Bank, Ajith Niwad Cabraal’s statement is a number magic done through a book entry but not a flow of dollars to the country. The government ended the parliamentary term until January 18, 2022, to repay the Rs. 500 million loan on January 17, 2022 and to brag about it in Parliament the next day. However, the country does not currently have sufficient reserves to pay the full amount of $ 1380 million due in January.