Sri Lanka has a habit of selling its assets in difficult times. And it doesn’t get any more difficult than this. The island nation is in default and desperately needs $4 billion to pay for food, fuel and fertilizer to avoid a deepening crisis. The newly appointed prime minister, Ranil Wickremesinghe—for the sixth time in the job—wasted no time in announcing to the government that Sri Lankan Airlines would be privatized. Analysts at Bloomberg Intelligence wrote last month that the national carrier was grappling with a stretched balance sheet even before Covid and could fail to pay aircraft lessors. It had lost $125 million as of March 2021 and will likely struggle to find a buyer willing to take it.
But when a country has only a day’s stock of gasoline and doesn’t have enough dollars to pay for three ships carrying crude and distilled oil anchored ashore, selling anything seems like a worthy strategy. looks like. The problem is that Sri Lanka has already given some of its most strategic points to China, which until recently was working hard to expand its footprint there. Now, Beijing has offered loans of “a few hundred million dollars”, Wickremesinghe told the Financial Times, while his government seeks to renegotiate about $3.5 billion of China’s existing loans.
Wickremesinghe has been pushing for faster talks with the International Monetary Fund, but his negotiators are yet to reach an employee-level agreement with the multilateral lender. And until the debts start flowing, Sri Lanka is living day by day. Protesters have established a permanent presence in the capital Colombo, and continue to demand the resignation of President Gotabaya Rajapaksa. A sign reads, “Give us our stolen money back,” as the popular fury over economic hardships shows no sign of abating.
China is Sri Lanka’s biggest bilateral creditor, and its white elephants—the Chinese-built Hambantota port and the less-used airport near the Rajapaksa family’s native village—have contributed to anger against the political dynasty that included the president and his brother Mahinda. Are included. , who resigned as prime minister on 9 May following violence that left nine people dead and dozens injured. The protests were followed by growing civil unrest over their disastrous fertilizer ban, leading to ongoing food shortages and a failure to handle the foreign exchange crisis.
There is also Colombo Port City, which was meant to establish the capital as the next major Asian financial centre. But its status as a special economic zone means the government sees little benefit to the mark it has built along the coast. It, like the port, is controlled by a Chinese-owned company, a significant portion of which is on a 99-year lease.
Of course, not only does Beijing want to make an impact in Sri Lanka. India’s share may be small, but it has significant influence in the region through its political and economic influence. New Delhi has provided more than $3.5 billion this year to help pay for fuel, food and medicine. The arrival of Indian shipments of diesel and petrol over the past two weeks has created panic in Colombo as citizens flocked to fuel stations to try and refill their vehicles. Last September, India’s Adani Group inked a $700 million deal to develop a deepwater container terminal in Sri Lanka, which the Sydney-based Lowy Institute called a “strategic game-changer in the battle for influence between Beijing and New Delhi”. “As described. It will sit next to the Chinese-operated terminal at Colombo Port. Then in January, Lanka IOC, a subsidiary of IndianOil, took a 49% stake in the joint development of the Trincomalee oil tank farm, with Ceylon Petroleum holding a 51% stake in the final. A deal struck in 1987. Sri Lanka’s location along one of the world’s busiest shipping routes means that it is important for maintaining global supply chains.
So what else can privatize the country? This worries political economists such as Ahilan Qadirgamar, who are concerned about the social impact of key assets left in the hands of the government. Kadirgamar of the University of Jaffna said the Ceylon Electricity Board and Ceylon Petroleum Corp were most likely to be considered by the authorities. He predicted that there would be significant resistance to such a move. “Few developing countries have electricity connectivity and services like Sri Lanka. Even daily wage labor families have access to electricity, which benefits their children’s education.” The IMF will pressure Colombo to reduce the agency’s losses, he predicts, and the government may be tempted to replenish its coffers through sales rather than reform. region.
For now, it appears that the country has no choice but to rely on the generosity of India and China. The World Bank said it does not intend to offer new financing until Colombo has an “adequate macroeconomic policy framework” that restores stability and growth.
Ruth Pollard is Bloomberg Opinion Editor