ECONOMYNEXT – Any domestic debt re-structuring will be part of a negotiation process with creditors, which will take place after a program with International Monetary Fund is in place, Central Bank Governor Nandalal Weerasinghe said.
First financial assurances from bi-lateral creditors have to be received to qualify for the IMF program.
“Then only we start discussions with private creditors,” Governor Weerasinghe told a forum organized by the Ceylon Chamber of Commerce responding to a question whether Treasury bills are likely to be re-structured.
Sri Lanka was already engaged with private creditor but detailed discussions will start after the IMF program is in place.
The discussions will involve ‘what is the demanded from the other side and how they can contribute’ and ‘how we can contribute’.
As a creditor party it was not right to comment, he said.
Sri Lanka’s sovereign bond holders however will demand a domestic debt re-structuring, according to reports.
Sri Lanka is expecting to conclude debt re-structuring in about six months, Governor Weerasinghe said.
Sri Lanka authorities have said a domestic debt re-structure will hurt commercial banks which have already taken a hit on mark-to-mark losses.
Holders of domestic debt have seen the real value already slashed as the rupee fell from 200 to 360 to the US dollar.
Bank would also have to take a hit on International Sovereign Bonds.
The central bank was in discussions on bank on any impact on debt treatment, Governor Weerasinghe said.
“We are talking to banks,” he said. “We think we can manage it.”
Aruni Gunathilake Chairperson of Hatton National Bank said a debt restructuring will hurt banks.
Sri Lanka’s accounting and banking regulators have said that the impact does not have to be taken to the books up front and can be amortized over time, she said.
Foreign bond re-structuring may hurt dollar liquidity in banks.
Sri Lanka’s rupee bonds which investors are still buying despite fears of a default are now paying around 30 percent.
The lack of clarity over domestic debt re-structuring, the last source of non-inflationary borrowing left for a government that had defaulted on dollar debt, or at least a cut off date is a deep flaw in the current sovereign debt workout process, critics say. (Colombo/Jan24/2023)