Debt-stricken Sri Lanka signs trade pact with Thailand as it seeks ‘recovery’

Sri Lanka’s president on Sunday said the cash-strapped nation was “gradually” emerging from its worst economic crisis, a day after the signing of a free-trade deal with Thailand.

Recalling the “indignity of being labelled a financially bankrupt country”, President Ranil Wickremesinghe dispensed with the customary annual Independence Day address in favour of a brief statement.

“Throughout this journey, challenges will gradually dissipate, life’s burdens will lighten, the economy will fortify,” Wickremesinghe said. “It is imperative that we obtain insights from past mistakes and avoid their repetition.”

Thailand’s Prime Minister Srettha Thavisin and Sri Lankan President Ranil Wickremesinghe at a guard of honour ceremony in Colombo on February 3. Photo: EPA-EFE/Sri Lankan President’s Media Division

On Saturday, the Sri Lanka Thailand Free Trade Agreement covering trade in goods, investment, custom procedures and intellectual property rights was signed in Colombo in the presence of Wickremesinghe and Thai Prime Minister Srettha Thavisin.

Sri Lanka began talks with Thailand on a free-trade agreement in 2016.

The countries’ two-way trade was worth about US$352 million in 2022, with Thailand’s exports at US$292 million and Sri Lanka’s exports at US$58 million, according to Sri Lankan government’s data.

Sri Lanka exports include mainly precious stones, apparel, tea and spices, while exports from Thailand include smoked rubber sheets, natural rubber, plastic and cement. Sri Lanka’s government expects the trade pact would boost two-way trade up to US$1.5 billion.

A vendor holds Sri Lankan cash at a market in Colombo. Photo: AFP

Thavisin said the countries agreed to promote investment in areas such as fisheries, food processing, tourism and green energy. Thailand has made over US$92 million in direct investment in Sri Lanka from 2005 to 2022.

Giving further boost to tourism, Thavisin said his country’s flag carrier Thai Airways would resume daily flights from Bangkok to Sri Lanka next month.

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Sri Lanka has been struggling with an economic crisis since declaring bankruptcy in April 2022 with more than US$83 billion in debt, more than half of it to foreign creditors. The crisis led to protests that ousted then-President Gotabaya Rajapaksa.

Severe shortages of food, fuel and medicine have largely abated over the past year under Wickremesinghe. But public dissatisfaction has grown over the government’s effort to increase revenue by raising electricity bills and imposing heavy new income taxes on professionals and businesses.

The International Monetary Fund approved a four-year bailout programme last March to help the South Asian country.

Sri Lanka is hoping to restructure US$17 billion of its outstanding debt and has already reached agreements with some of its external creditors.

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Calling the agreement “a milestone in the economic partnership” between the two countries, Wickremesinghe on Saturday said Sri Lanka has made “significant progress in economic stabilisation” since the crisis erupted.

“As Sri Lanka begins to stabilise its economy and regain international confidence towards recovery and growth, we are looking at Thailand’s support as Sri Lanka undertakes this very important journey of economic transformation and integration with Asia,” Wickremesinghe said.

He also said the free trade agreement was Sri Lanka’s second with an Asean country, after Singapore. Sri Lanka is also in talks with neighbouring India and China on trade agreements.

Additional reporting by AFP

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