An Echelon Media Company
Saturday June 3rd, 2023

Sri Lanka, not IMF, should restructure debt: Jayasundera

INFLATIONARY POLICY: Whenever Sri Lanka prints money (tries to inflate reserve money domestically) foreign debt accumulation exceeds the deficit financing. In 2020 repayments had led to central bank net debt going up.

ECONOMYNEXT – Sri Lanka itself should restructure its loans instead of seeking the assistance of the International Monetary Fund (IMF) and the government has been reducing sovereign debts in that strategy, Presidential Secretary P B Jayasundera said this week.

Moody’s downgraded Sri Lanka’s sovereign rating by slashed one notch down to Caa2 from Caa1 to near default category and global fund managers and analysts have warned Sri Lanka to start IMF discussions seeking debt restructuring.

Sri Lanka is facing a risk of sovereign debt default, analysts say, as its expected foreign inflows are less than the expected foreign outflows amid a depleting foreign reserves after the central bank’s excess money printing resulted in unabated imports despite stringent regulations to cut imports.

Jayasundera, Sri Lanka’s top civil servant and former finance secretary who still has a considerable influence in economic policies, said the government still does not see a need for IMF debt restructuring.

“I don’t see any reason to go to the IMF to restructure the loans. We should restructure the loans by ourselves,” Jayasundera told a virtual news briefing on Tuesday (02) held at Presidential Media Centre.

“We have been hearing about this debt restructuring, default, and need to go to the IMF for the past two years. But meantime we have reduced our sovereign debt by 2 billion US dollars to 13 billion US dollars.”

In a debt restructuring or a distressed debt exchange (DDE) is done by negotiators between the sovereign and a representative committee of bond holders.

However the presence of an IMF program and a sign off on debt sustainability, give confidence to bond holders to accept the re-structuring.

A fully-financed IMF program also unlocks further budget support loans if the government is willing to do growth generating reforms as well as Paris club relief.

Analysts have also warned that Sri Lanka’s reduction of government debt has come from a run-down of foreign reserves and a increasing net indebtedness of the central bank due to liquidity injections.

Jayasundera in September told EconomyNext that the IMF will “definitely” have a role to play in Sri Lanka’s post-Covid-19 economic recovery, but that will be after the authorities formulate the policy framework through the 2022 budget which will be presented on Nov. 12.

Speculations over President Gotabaya Rajapaksa’s administration going to the IMF are on the rise amid risk of sovereign debt default and possible collapse in the rupee currency. However, the government has strongly denied that it was going to the global lender.

Treasury Secretary S R Attygala participating in the same briefing said the government has reduced the foreign debt to 40 percent of the GDP now compared to 50 percent in early 2019 while facing all the risks.

Facing the foreign exchange crisis, the central bank has already started its informal road shows to meet foreign investors, Sri Lankan diaspora, central banks of other countries as well as commercial banks seeking for swaps with its counterparts, investments into government securities, a borrowing through syndicated loan, or investment into government securities.

Central bank chief Ajith Nivard Cabraal was in Qatar late in October and met Qatari central bank officials and heads of Qatar National Bank, Doha Bank and The Commercial Bank Qatar, he said in a twitter.come message.

He is visiting the Middle East and attending an investor forum in Dubai to drum up investments to the country.

The central banks last week said many of the planned inflows are on the cards and some are at discussion levels.

Sri Lanka has outlined plans to bring in inflows, but analysts have said the core problem is to stem outflows, which are occurring due to liquidity injections by the central bank which are driving demand and domestic credit up.

Liquidity injection not only made it difficult to raise dollars to repay debt, but also used up reserves to pay for day-to-day imports. Sri Lanka’s imports are at at three-year high due to liquidity injections.

Sri Lanka is now planning credit lines for fuel, in effect incurring foreign debt for day to day living. (Colombo/Nov08/2021)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

Continue Reading

Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

Continue Reading

Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

Continue Reading