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Resolving the foreign debt trap

Comments / {{hitsCtrl.values.hits}} Views / Friday, 15 March 2019 00:00



My attention was drawn to an unanswered issue in the press on the captioned subject which inter-alia revealed the following data to explain what a foreign debt trap is.

1) Foreign debt $ 53 b – 77% of GDP

2) Foreign reserves $ 7 b

3) Annual Debt repayment over $ 5 b

4) Trade deficit $ 10 b

5)  Borrowing to repay debt, increases debt resulting in a foreign debt trap.

We know that our annual debt repayment reached astronomical proportions after 2015, mainly due to the expiry of the grace periods and the beginning of the repayment periods of many of the foreign loans which were either short-term or medium-term obtained under commercial terms to avoid harsh ancillary conditions imposed by traditional long term foreign lending agencies like the world Bank and Asian Bank et al. It is also admitted that the infrastructure projects (though some were of national importance), didn’t generate the desired return on the massive loan investments to facilitate loan servicing.

In this difficult scenario, we appeal to the monetary authorities to avoid the debt trap and willful default by making fervent and cogent requests to the big foreign lenders to restructure our loans by allowing longer repayment periods with concessionary interest rates. Even if it affects our international ratings, such redress will reduce the burden of our critical annual foreign debt repayment and give us sufficient breathing space to come out of the vicious debt trap by improving our exports, rationalising imports and reducing trade deficit.  Perhaps, we can obtain assistance from UN lending agencies to underwrite the relevant loan restructuring packages.

I am confident that our good relationship with China and other big lenders coupled with the negotiating skills of our political and concerned subject officers would bring in favourable results.

Bernard Fernando,


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