ECONOMYNEXT – Sri Lanka will shortly transfer funds to repay a billion US dollar sovereign bond falling due on July 27, giving big profits to holders who bought at huge discounts, State Minister for Money and Capital Markets, Nivard Cabraal said.
Sri Lanka was downgraded to ‘CCC’ in 2020 after tax cuts and liquidity injections triggered a run on central bank reserves also known as a balance of payments deficit.
“I have been saying right throughout that we will pay,” Minister Cabraal said. “Unfortunately some bond holders panicked due to rating actions and analyst reports and sold off at huge discounts.
“Those who came last profited most.”
Sri Lanka’s bonds have been quoted at discounts around 20 to 30 percent in some cases. Among those who bought bonds were local banks.
Sri Lanka had 4.0 billion US dollars of gross foreign assets in June 2021, though some it is encumbered and also 1.5 billion US dollar unused Renminbi swap from China.
According to Central Bank data out of outstanding ISBs of 14.05 billion dollars by end Dec 2020, 2,230 million was held by domestic investors.
The central bank initially banned the purchase of bonds, as liquidity injections to keep rates down created dollar shortages, but last month allowed banks to buy bonds and also allowed companies to buy them with overseas funds.
Cabraal says a strategy of reducing exposure to sovereign bonds and debt overall is being followed. (Colombo/July25/2021)