Sri Lanka to set up liability management fund for debt
Oct 20, 2017 13:08 PM GMT+0530 | 0 Comment(s)
ECONOMYNEXT - Sri Lanka will set up a liability management fund to cope with a spike in debt maturities in 2018 and 2019 and make borrowings more transparent, Prime Minister Ranil Wickremesinghe said.
Under existing law Sri Lanka cannot pre-emptively more cash that the maturities falling and pre-pay debt or build up a buffer.
"…[W]e will introduce a comprehensive secondary market trading platform and a liability management fund," Prime Minister Wickremesinghe told parliament.
"These reforms and future reforms will come into effect under the new Fiscal Liability Management Act that provides legal framework for a prudent debt management strategy."
In 2018 2.3 billion dollars of US dollar denominated debt is due to mature. In 2019 a 1.5 billion dollar sovereign bond is due to mature, requiring a bullet repayment or rollover.
Sri Lanka started borrowing commercially abroad over the past dozen years.
With dollar denominated debt the central bank cannot simply depreciate the rupee, and cut the real value of state debt imposing by losses on the Employees Provident Fund and other savers who had bought government rupee debt, forcing budget reform.
The creation of a central bank in 1951 removed a 'hard budget constraint' that had been in place during British times, allowing native rulers to borrow and avoid real repayment with currency depreciation and inflation.
Dollar values remain the same in real terms, though it appears as if depreciation expands dollar loans.
"Our policies will be targeted on forward-looking liability management strategies," Prime Minister Wickemesinghe said
"Accordingly, the funds required by the government will be raised with transparency and predictability.
"Under the medium – term debt management strategy, the detailed strategies of government borrowings will be known in advance to the domestic and foreign debt portfolios."
Sri Lanka has already pushed up tax revenues increasing the debt to gross domestic product ratio, Prime Minister Wickremesinghe said.
Higher revenues and expenditure controls will allow the budget deficit to be lowered to 3.5 percent of GDP by 2020. A lower budget deficit can reduce the overall debt by reducing the accumulation of new debt. (Colombo/Oct20/2017)