Sri Lanka Takes Responsibility for State Enterprises’ Debts to China

Ranil Wickremesinghe in Auckland, New Zealand, on Oct. 1, 2016. (Fiona Goodall/Getty Images)

Sri Lanka’s government will take responsibility for loans taken out by state-owned enterprises from China as part of the country’s debt-restructuring plan, President Ranil Wickremesinghe said in parliament on Tuesday.

Wickremesinghe, who is also the finance minister, was delivering the national budget for 2023. He said that loans borrowed from the Exim Bank of China by some state-owned enterprises would be classified as government debt.

These companies include Ceylon Electricity Board, Sri Lanka Ports Authority, and Airport and Aviation Services. Sri Lanka would also take over the guaranteed foreign exchange debt owed by the Ceylon Petroleum Corporation.

According to the president, removing the loans from these companies’ balance sheets will strengthen their financial statements, which will draw in more investors.

Restructure Loss-Making State Companies

Wickremesinghe said the government will also restructure some “fiscally significant” state-owned enterprises—including Sri Lankan Airlines, Telecom, Colombo Hilton, Waters Edge, and Sri Lanka Insurance Corporation.

Proceeds from the restructure will be used to strengthen Sri Lanka’s foreign reserves and currency, he added.

“Much was spent to maintain loss-making state-owned enterprises and unnecessary expenditure for political gains. These expenses were met not with the income earned by the country but being in debt to the world,” he said in his speech.

Sri Lanka defaulted on its debt in May. The island nation has $13.8 billion in bilateral debt as of September, of which 52 percent is owed to China, according to the Finance Ministry (pdf).

Japan holds 19.5 percent of Sri Lanka’s debt, while India holds 12 percent.

Wickremesinghe said that negotiations for a bailout package with the International Monetary Fund (IMF) are still ongoing. Sri Lanka has also initiated debt restructuring talks with India and China.

“A glimmer of hope on emerging from the economic abyss is currently visible, as a result of the strenuous and difficult policies we have been compelled to adopt during the past few months,” he said.

“After the era of waiting in queues for days and various protests, our distress has been eased to some extent, reaching a sense of satisfaction,” the president added.

Abdur Rahim Siddiqui, the World Food Program representative, said the country’s crippling economic crisis caused more than 60 percent of families to reduce food consumption and eat less nutritious food.

“This comes at a time when financial constraints have forced the government to scale back on nutrition programs, such as school meals and fortified food to mothers and undernourished children,” Siddiqui said in a statement.

The United Nations reported that about 6.3 million Sri Lankans face “moderate-to-severe acute” food insecurity due to the country’s poor harvest season and high food inflation, which peaked at 85.6 percent in October.

Sri Lanka’s poverty rate increased from 13.1 percent in 2021 to 25.6 percent this year, according to the World Bank’s data.