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Sri Lanka may hit foreign borrowing ceiling, recall parliament to raise it: ex-Finance Minister

ECONOMYNEXT – Sri Lanka may hit legal snags in getting foreign loans unless parliament is recalled to pass new resolution to legalize the drawing down of loans such as a 128 million US dollar facility from the World Bank, ex-Finance Minister Mangala Smaraweera said.

A facility from World Bank is for 128 million dollars approved last week may face delays he said. To avoid legal complications he asked that a resolution be passed in parliament to raise the borrowing limit.

He was confident that the entire parliament would support a such a move.

The World Bank facility however has short-term and medium term components.

Sri Lanka on April 01 also failed to raise up to 200 million dollars through dollar bond sold locally, which may have created space for other borrowings, analysts say.

Samaraweera said in a statement that the government has raised 650 billion rupees so far through several instruments and there was a limit of 721 billion rupees in a vote on account.

Meanwhile money has also been printed (deficit has been monetized), he said.

The full statement is reproduced below

Statement by the Former Minister of Finance MangalaSamaraweera

Raising the Borrowing Limit Imperative for Fighting COVID-19

Due to legal complications, there may also be delays in drawing down the USD 128 million (Rs. 24.4 billion) soft-loan granted by the World Bank Group for fighting COVID-19.

For the period of January 01, 2020 to April 02, 2020, the Government has borrowed Rs. 650.15 billion through Sri Lanka Development Bonds, a dollar-loan from the China Development Bank and primary auctions of Treasury bills and Treasury bonds.

Furthermore, Central Bank holdings of Government securities and other data on Central Bank open-market-operations suggest significant direct monetary financing of the deficit. This will add to the sum of government borrowings.

The borrowing limit, approved by a resolution of Parliament on 23 October 2019for the period 1 January 2020 to 30 April 2020, is Rs. 721 billion. Last year, the Treasury issued Rs. 194 billion in bills and bonds between 3 April 2019 and 30 April 2019.Therefore, it is almost certain that a breach of the borrowing limit is imminent.

Once the borrowing limit is reached, there will be no legal authority under which public debt can be issued. As a result, the government may face insurmountable challenges in raising the funds necessary for managing this crisis. Due to these legal complications, there may also be delays in drawing down the USD 128 million (Rs. 24.4 billion) soft-loan granted by the World Bank for fighting COVID-19.

Therefore, in light of these urgent and unforeseen requirements arising from the pandemic, I urge the government to immediatelymove a resolution in Parliament to raise the borrowing limit. I am certain the entire Parliament will support such a resolution that responsibly increases the borrowing limit.