The UN has requested Sri Lanka to introduce a brief primary revenue 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 Improvement Programme made the proposals in a doc seen by the Monetary Occasions that was submitted to President Gotabaya Rajapaksa’s authorities and that can be reviewed by the cupboard that was sworn on this week.
Sri Lanka’s lack of overseas alternate 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 federal government, which has about $8bn of debt and curiosity due this yr on usable overseas reserves estimated as little as a couple 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 package deal anticipated to incorporate debt restructuring.
The UNDP argues that Sri Lanka, which owes about $45bn in long-term debt to collectors that embrace worldwide bondholders and international locations comparable to India and China, wants instant monetary help whereas the IMF talks are below manner.
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 deal, if it is available in, that’s going to be an austerity package deal,” Kanni Wignaraja, the UNDP’s Asia director, advised the FT. “So the federal government should, and they’re contemplating very a lot, supporting essentially the most weak households with a direct social safety circulation.”
Among the many UNDP’s requests is that Rajapaksa’s authorities introduce a brief primary revenue, which might take the type of an unconditional money switch to working-age Sri Lankans for a interval of about six to 9 months. Related programmes have been applied in Kenya and the US state of Alaska.
“It’s one thing that has been tried and examined,” Wignaraja stated. “There’s clearly a value to bear, nevertheless it has been discovered to be extra environment friendly than a few of these very heavy social safety measures.”
The company has additionally requested Sri Lanka to pursue bonds or debt swaps linked to environmental and social sustainability, comparable to debt-for-nature offers through which some loans are forgiven in alternate for funding in environmental conservation.
Related measures have been launched in international locations comparable 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 “transferring fairly aggressively to see if the debt-for-nature swaps could be a huge a part of [a deal]. We’ve obtained to cut back our debt burden, not simply hold restructuring it,” she stated. “Sri Lanka has wonderful pure sources that they’ll put [up] to attract 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 through the pandemic.
Dwindling overseas alternate reserves left the import-dependent island with shortages and extreme inflation. Meals 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.
