ECONOMYNEXT – Sri Lanka is confident of reaching debt sustainability without re-structuring domestic debt which will lead to problems in the banking sector, Central Bank Governor Nandalal Weerasinghe said.
“There has been no request to restructure domestic debt,” Governor Weerasinghe told reporters in Colombo.
“We are confident that we can make debt sustainable without restructuring debt.”
There have been concerns among domestic bond investors that rupee debt will be re-structured following comments made by President Ranil Wickremesinghe that financial advisors were ‘looking at’ domestic debt.
“The government position is that we will re-structure external debt,” Governor Weerasinghe said.
Sri Lanka was experiencing a balance of payments crisis and needed time to pay external creditors, he said.
“Restructuring domestic debt will affect bank and that will not help the economic recovery,” Governor Weerasinghe said.
“The economy will recover faster and external creditors will be able to recover their debt faster.
“We want to minimise the impact on the domestic banking system.”
A stable banking system will help foreign lender recover their money faster by helping the economy recover quickly, he said.
Sri Lanka’s rupee bond holders including the Employees Provident Fund as well as bank depositors have taken a steep ‘hair cut’ in terms of the steeply depreciate rupee and high inflation around 60 percent, which will automatically boost rupee revenues when the economy recovers.
Sri Lanka is expecting an International Monetary Fund team towards the end of the month and hopes to finalize a staff level agreement, he said.
It will then be used as a basis to approach creditors and seek relief. (Colombo/Aug18/2022)