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Kuwait’s Development Fund: Sri Lanka’s Debt is ‘Sovereign,’ Can’t Be Canceled

Kuwait’s Development Fund: Sri Lanka’s Debt is ‘Sovereign,’ Can’t Be Canceled
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Kuwait’s Development Fund: Sri Lanka’s Debt is ‘Sovereign,’ Can’t Be Canceled

Kuwait’s Development Fund: Sri Lanka’s Debt is ‘Sovereign,’ Can’t Be Canceled

The Kuwait Fund for Arab Economic Development (KFAED) affirmed on Wednesday that the debts other countries owe it are “sovereign.”

It referred to Sri Lanka’s announcement of defaulting on its $51 billion external debt.

The Fund is one of the entities that lend to the Sri Lankan government, which has defaulted on five of the 16 loans the KFAED has provided.

It announced on Twitter giving Sri Lanka 16 loans with a total value of about 87 million Kuwaiti dinars to finance projects in various sectors.

“Sri Lanka has so far withdrawn about 68 million Kuwaiti dinars ($285 million), of which about 39 million Kuwaiti dinars ($127.8 million) were repaid. That is equivalent to 57% of the total withdrawn amount,” it explained in a tweet.

According to the KFAED, in case the state announces a default in payment, the loan agreements concluded with the borrower (the state) ensure the Fund’s rights are preserved, given that sovereign debts cannot be canceled.

Sri Lanka announced a default on its $51 billion foreign debt Tuesday as the island nation grapples with its worst economic crisis in memory and escalating protests demanding the government’s resignation.

Acute food and fuel shortages, as well as long daily electricity blackouts, have brought widespread suffering to the country’s 22 million people in the most painful downturn since independence in 1948.

The government has struggled to service foreign loans, and Tuesday’s decision comes ahead of negotiations for an International Monetary Fund bailout aimed at preventing a more catastrophic hard default that would see Sri Lanka completely repudiate its debts.

“We have lost the ability to repay foreign debt,” Sri Lanka’s Central Bank Governor Nandalal Weerasinghe told reporters in Colombo.

“This is a pre-emptive negotiated default. We have announced (it) to the creditors.”

Just under half of Sri Lanka’s debt is market borrowings through international sovereign bonds.

China is Sri Lanka’s largest bilateral lender and owns about 10 percent of the island’s foreign debt, followed by Japan and India.

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Business

US Job Growth Surges in September, Unemployment Rate Falls to 4.1%

A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
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US Job Growth Surges in September, Unemployment Rate Falls to 4.1%

A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo

US job growth accelerated in September and the unemployment slipped to 4.1%, further reducing the need for the Federal Reserve to maintain large interest rate cuts at its remaining two meetings this year.
Nonfarm payrolls increased by 254,000 jobs last month after rising by an upwardly revised 159,000 in August, the Labor Department's Bureau of Labor Statistics said in its closely watched employment report on Friday.
Economists polled by Reuters had forecast payrolls rising by 140,000 positions after advancing by a previously reported 142,000 in August.
The initial payrolls count for August has typically been revised higher over the past decade. Estimates for September's job gains ranged from 70,000 to 220,000.
The US labor market slowdown is being driven by tepid hiring against the backdrop of increased labor supply stemming mostly from a rise in immigration. Layoffs have remained low, which is underpinning the economy through solid consumer spending.
Average hourly earnings rose 0.4% after gaining 0.5% in August. Wages increased 4% year-on-year after climbing 3.9% in August.
The US unemployment rate dropped from 4.2% in August. It has jumped from 3.4% in April 2023, in part boosted by the 16-24 age cohort and rise in temporary layoffs during the annual automobile plant shutdowns in July.
The US Federal Reserve's policy setting committee kicked off its policy easing cycle with an unusually large half-percentage-point rate cut last month and Fed Chair Jerome Powell emphasized growing concerns over the health of the labor market.
While the labor market has taken a step back, annual benchmark revisions to national accounts data last week showed the economy in a much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.
This improved economic backdrop was acknowledged by Powell this week when he pushed back against investors' expectations for another half-percentage-point rate cut in November, saying “this is not a committee that feels like it is in a hurry to cut rates quickly.”
The Fed hiked rates by 525 basis points in 2022 and 2023, and delivered its first rate cut since 2020 last month. Its policy rate is currently set in the 4.75%-5.00% band.
Early on Friday, financial markets saw a roughly 71.5% chance of a quarter-point rate reduction in November, CME's FedWatch tool showed. The odds of a 50 basis points cut were around 28.5%.