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Sri Lanka repays billion US dollar sovereign bond

ECONOMYNEXT – Sri Lanka has repaid a billion US dollar sovereign bond falling due this week, the central bank said with the country unable to roll-over the bond due to high secondary market yields following global jitters and credit downgrades.

“This settlement reconfirms the Government’s unwavering commitment to honour its foreign liabilities, thereby bolstering investor confidence and dispelling any concerns foreign investors may have in relation to the Government’s ability and willingness to maintain its unblemished debt servicing record,” the Central Bank said.

“The domestic foreign exchange market has already reacted positively to this settlement and other recent positive developments in the Sri Lankan economy.

“With the envisaged inflows to the domestic foreign exchange market supported by proactive measures taken by the Government and the Central Bank of Sri Lanka, the market sentiment is expected to further strengthen in the period ahead.”

Sri Lanka has slapped the worst import controls seen since the collapse of the Bretton Woods system of soft-pegs in 1971.

Some imports were permitted with suppliers’ credit, which will eventually have to be paid.

Sri Lanka runs into ‘foreign exchange shortages’ when rupees over-issued into the banking system (printed money) through open market operations or to finance the deficit and keep Treasury bill rates down expanding bank reserves, are disbursed by banks triggering a cascading expansion in credit.

Sri Lanka’s private credit was negative until August.

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