Sri Lanka ‘coup’ cost US$1bn in reserves, credit downgrade: PM
ECONOMYNEXT – The cost of a ‘coup’ where Mahinda Rajapaksa was appointed Prime Minister and parliament was dissolved illegally cost the country a billion US dollars in reserves, a credit downgrade and lost tourism revenues, Prime Minister Ranil Wickremesinghe said.
"No country or lending agency was willing to give us money during the period," Wickremesinghe told parliament.
Sri Lanka had 7,991 million dollars in forex reserves when the coup started on October 26 but ended with 6985 million dollars when it ended, Wickremesinghe told parliament.
Sri Lanka’s credit was also downgraded during the period, he said.
"There was a loss of confidence. The effects are not easy to quantify," Wickremesinghe said. "They will have a lasting effect and we will have to win back confidence."
Risk premium of Sri Lanka bonds rose during the period and Sri Lanka had to delay plans to raise money abroad under a liability management plan.
Sri Lanka had to repay 5,900 million dollars of dollar denominated debt in 2019. In January 2,600 million dollars had to be repaid, which was the highest in history he said.
"Both a delay in payments and front loading has result in this crunch," he said.
On January 14 a billion US dollar bond is maturing with a bullet repayment.
Though Sri Lanka was named as a top tourism destination in the world, the island got travel advisories, hurting the sector, Wickremesinghe said.
Investors fled selling 312 million US dollars during the 51 day period of Rajapaksa rule.
The rupee had also fallen, he said.
Government projects had also slowed because there was no one to take decisions, Wickremesinghe said.
Ironcially lower government spending, which will lower credit demand and reduce the amount of money printed by the central bank to keep a fixed interest rate (soft-dollar peg) will help stabilize the rupee. Sri Lanka’s rupee falls because the centarl bank prints money to maintain a fixed interest rate.
Bandula Gunewardene, an ally of Rajapaksa and former Deputy Finance Minister under him said Wickremesinghe had dilly-dallied for over three years making mistakes and was now blaming everything on 51 days of Rajapaksa rule. (Colombo/Jan10/2018)