ECONOMYNEXT – Sri Lanka’s will honor all debt commitments Treasury Secretary Sajith Attygalle said as the island’s sovereign bond yields soared amid global market jitters and some maturities were trading as much as 40 percent below par.
“We haven’t defaulted in our history,” Attygalle said. “The government is keen to maintain that position.”
Sri Lanka has just raised a 500 million dollar loan from China Development Bank and another 800 million dollars tranche is on the way.
Sri Lanka will shortly sign a loan deal with the World Bank which will also include funds to bolster the island’s health sector to battle against Coronavirus.
Sri Lanka is also in talks with other multilateral lenders he said.
Sri Lanka also has a 9.6 billion dollar pipeline of committed foreign debt from multilateral and bilateral lenders, a part of which will be disbursed this year from time to time.
In late 2020, Deputy Central Bank Governor Nandalal Weerasinghe said about 1.5 billion of multilateral lending will go towards repaying debt.
Sri Lanka has also raised extra debt in 2019, which will go to settle debt up to April. The repayments for the first half of 2020 is about 2.8 billion US dollars, out of a total of about 45 billion US dollars for the full year, the Finance Ministry said in a March report.
“We also have a fall back option of using foreign reserves,” Attygalle said.
Sri Lanka twice used forex reserves to repay sovereign bonds, when the country felt that it was not ready to go to market. In 2015 shortly a 500 million dollar bond after Presidential elections and in early 2018 after a constitutional crisis when yields on bonds rose steeply.
This year the central bank stopped domestic banks from buying the cheap bonds, leading to drying up of liquidity and further falls in prices, analysts said.
Analysts, however, have raised concerns about monetary instability given recent performance with the current framework.
Sri Lanka’s exports and also bank credit has been hit by countermeasures placed to fight Coronavirus as well as markets drying up in the West.
Sri Lanka is one of 75 countries that is qualified to ask for a debt moratorium from bilateral and multi-lateral suggested by the World Bank and IMF.
President Gotabaya Rajapaksa has urged the World Health Organization chief to Tedros Adhanom to push the moratorium as many developing countries depended on tourism, exports, remittances and foreign investment in debt and equity markets which were hit by COVID-19, in a telephone conversation, his office said.
Sri Lanka is one of the few countries that are actively engaged in contact chasing to battle Coronavirus, along with Korea and Vietnam.
Sri Lanka started quarantining Wave I arrivals from China in January 2020 and tightened restrictions and has now slapped curfews to stop community spread.
Sri Lanka is now trying to stamp out clusters of Wave II infections that came to the country from third countries like Italy, the UK, Thailand, and India before all arrivals were stopped on March 19. (Colombo/Apr01/2020-sb)