A big clearance sale of Sri Lankan assets could be about to begin


Sri Lanka has a history of selling its assets when times are tough. And it doesn’t get much harder than that. The island nation is in default and desperately needs $4 billion to pay for food, fuel and fertilizer to avert a deeper crisis. Newly appointed Prime Minister Ranil Wickremesinghe – his sixth time in office – was quick to announce that the government would privatize Sri Lankan Airlines. The national carrier was struggling with a stretched balance sheet even before covid and may not make payments to aircraft lessors, Bloomberg Intelligence analysts wrote last month. It had lost $125 million in the year to March 2021 and will likely struggle to find a buyer willing to take it back.

But when a country only has a day’s supply of gasoline and not enough dollars to pay for the three ships carrying crude oil and fuel oil anchored off the coast, selling anything that isn’t tacked is starting to look like a valid strategy. The problem is that Sri Lanka has already ceded some of its most strategic points to China, which until recently has been working hard to expand its footprint there. Now Beijing has offered loans of “a few hundred million dollars”, Wickremesinghe told the Financial Times, as his government seeks to renegotiate around $3.5 billion in existing debt to China.

Wickremesinghe is pushing to speed up talks with the International Monetary Fund, but his negotiators have yet to reach a staff-level deal with the multilateral lender. And until the loans start pouring in, Sri Lanka lives hand to mouth. The protesters have established a permanent presence in the capital, Colombo, and continue to demand the resignation of President Gotabaya Rajapaksa. “Give us back our stolen money,” reads a sign, as popular fury over economic hardship shows no signs of abating.

China is Sri Lanka’s biggest bilateral creditor, and its white elephants – the Chinese-built port of Hambantota and the little-used airport near the ancestral village of the Rajapaksa family – have helped rage against the political dynasty that includes the president and his brother Mahinda, who resigned as prime minister on May 9 after violence that left nine people dead and dozens injured. The protests followed months of growing civil unrest over their disastrous fertilizer ban that led to continued food shortages and an inability to manage the foreign exchange crisis.

There is also Colombo Port City, which was to position the capital as the next major Asian financial center. But its status as a special economic zone means the government sees little benefit for the scar that has been created along the waterfront. Like the port, it is controlled by a Chinese company, a significant part of which is tied to a 99-year lease.

Of course, Beijing is not alone in seeking to exert influence in Sri Lanka. India’s share may be smaller, but it wields significant influence simply through its political and economic influence in the region. New Delhi has provided more than $3.5 billion in aid this year to help pay for fuel, food and medicine. The arrival of Indian shipments of diesel and gasoline over the past two weeks has caused chaos in Colombo as citizens flocked to petrol stations to try to refuel their vehicles. Last September India’s Adani Group struck a $700 million deal to develop a deep-sea container terminal in Sri Lanka in what the Sydney-based Lowy Institute described as a “strategic game changer”. in the battle for influence between Beijing and New Delhi. It will sit next to the Chinese terminal at the port of Colombo Then, in January, Indian Oil subsidiary Lanka IOC took a 49% stake in the joint development of the Trincomalee oil park, with Ceylon Petroleum retaining a 51% stake % in finalization. from an agreement reached in 1987. Sri Lanka’s location on one of the busiest shipping routes in the world means it is crucial for maintaining global supply chains.

So what else can the country privatize? This worries political economists like Ahilan Kadirgamar, who worries about the social impact of key assets leaving government hands. Kadirgamar of Jaffna University said officials were most likely to consider Ceylon Electricity Board and Ceylon Petroleum Corp. He predicts there will be significant resistance to such a move. “Few developing countries have the kind of electricity connectivity and services like Sri Lanka. Even the families of daily workers have access to electricity, which benefits the education of their children. The IMF will pressure Colombo to cut the agency’s losses, he predicts, and the government may be tempted to fill its coffers through a sale rather than reform the sector.

For now, the country seems to have no choice but to rely on the largesse of India and China. The World Bank said that until Colombo puts in place an “adequate macroeconomic policy framework” that restores stability and growth, it has no plans to offer new financing.

Ruth Pollard is editor-in-chief of Bloomberg Opinion

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