Sri Lanka now confident of managing government debt: CB Governor
ECONOMYNEXT – Sri Lanka is confident of managing debt if the government keeps to the path of reducing budget deficits and domestic rollover risks are now receding, Central Bank Governor Indrajit Coomaraswamy said.
A liability management law, which will also help managed rollover risks.
“We are confident that provided fiscal consolidation stays on track the government’s debt obligations can be managed,” Coomaraswamy said, delivering an oration in memory of Saman Kelegama, one of Sri Lanka’s most eminent economists who passed away last year.
“As far as domestic debt is concerned the peak was this year in 2018. From now onwards domestic debt repayments taper off that too will give us greater scope to mobilize more money domestically thereby reducing the pressure to borrow abroad.”
The central bank, which managed debt on behalf of the finance ministry, was also developing a medium term debt management strategy, Coomaraswamy said.
A liability management law, which allows the government to borrow in excess of deficit financing in a given year, while not reducing the stock will help smoothen out rolloover risks, he said.
With the US set to raise rates, Sri Lanka was facing higher international interest rates.
But by improving Sri Lanka’s credit quality, Sri Lanka hoped to narrow the risk premium, which will help manage the total interest rate, he said.
Analysts also say the central bank which operates a so-called soft-peg which has tended to crawl down, can be steeply de-stabilized at any time by loose policy from the monetary authority’s domestic operations department, which generates excess liquidity at the drop of a hat.
Loose domestic policy will create ‘foreign exchange shortages’ and make it difficult for Sri Lanka to repay foreign debt. (Colombo/June28/2018)