“How can SL overcome current economic crisis?”:  World’s leading debt restructuring expert explains

January 17, 2022 at 3:21 PM

Prof. Lee. C. Buchheit,  one of the world’s leading debt restructuring experts, explained the manner in which Sri Lanka must approach the current economic crisis and devise sustainable solutions.

He made these remarks while speaking at the ‘Sri Lanka Economic Outlook 2022’ forum organised by NextGenSL and the Friedrich Naumann Foundation for Freedom in Sri Lanka.

“Any fiscal adjustment programme initiated at this stage will be ‘distasteful’ and will involve a degree of pain. Even a home-grown adjustment programme will entail certain political problems due to the nature of reforms. The question here is whether the country’s political leaders will have the political stamina to proceed with them,” Prof. Lee C. Buchheit, an international expert with a 43-year legalcareer specializing in sovereign debt management, said.

Addressing the event, Buchheit presented a detailed account of the global debt situation for the year 2022. He has worked on over two dozen sovereign debt restructurings and he led the legal teams advising the sovereign debtors in the two largest sovereign debt workouts in history (Greece in 2012 and Iraq in 2005-08).

“The problem Sri Lanka must ask itself at the moment is whether there is a plausible fiscal adjustment programme that can be implemented within the next two-three years. It is in this context that the option of seeking the support of the International Monetary Fund (IMF) should be assessed and analysed. The country can also proceed with borrowings from bi-lateral partners as long as the Government has a clear policy and the stamina to implement comprehensive reforms,” he added.

“Sri Lanka’s creditors —be they bilateral or commercial  —will be interested in one critical question.  That would be; who are we going to share the pain with? Every sovereign bond restructuring boils down to one decision — How much of the country’s pain should be borne by its citizens, and how much should be borne by the creditors,” the international expert explained.

“Commercial creditors caught up in this issue often ask themselves whether the proposed debt restructuring is necessary and whether the conditions proposed to them are proportionate to what the country actually needs.”  “This could be a challenging process as both the public and the creditors would say that they are disproportionately carrying the burden.”

“Therefore, the only entity in the world with the technical expertise and the political legitimacy to assuage such concerns and handle this process is the International Monetary Fund (IMF)”, Prof. Buchheit said.

“A number of countries in the world have embarked on debt restructuring without the IMF. But, if you ask whether the involvement of the IMF is useful, the answer would be ‘yes’,” he added.

Commenting on international credit rating agencies downgrading Sri Lanka, Prof. Buchheit said it should not be a major concern for Sri Lanka.  “This will only be a big concern if you are trying to re-access the global capital market in the near future. When the country announces the need for debt restructuring, rating agencies will downgrade the country to ‘selective default’ and this rating will remain until the restructuring is completed. Once this is done, they will upgrade the country to higher rating categories.”

“This will only be a major worry if Sri Lanka intends to issue additional International Sovereign bonds in the near future. I don’t think Sri Lanka is in a position to do so,” he said.

Prof. H.D. Karunaratne, a prominent economist and the newly-appointed Vice Chancellor of the University of Colombo, Kasturi Chellaraja Wilson, Hemas Group CEO and Economist Deshal DeMel also spoke about Sri Lanka’s economic trajectory for the year and the options available at present. (NewsWire)