ECONOMYNEXT – Sri Lanka will consider buying back some of the international sovereign bonds due in 2021, if they continue to trade at steep discounts, Central Bank Governor Nivard Cabraal said, promising no default.
There is a 500 million dollar issue due in January 2022 and a billion dollars in July.
He said Sri Lanka will not default and will make payments on time, Cabraal said.
“We will consider buying back the ISBs if steep discounts continue,” he said.
He said though there were quotes at steep discounts there were no big volumes when someone tried to buy them.
Nany investors were holding on to the bonds, and had faith in the country, he said.
Sri Lanka had been reluctant to buy back bonds in the past despite having reserves as it may send negative signals official sources said. However some existing investors had also bought the bonds at discounts.
Sri Lanka is facing dollar sovereign default after running out of reserves after several years of monetary instability topped off by a tax hike and unprecedented liquidity injections created forex shortages and depleted foreign reserves.
Cabraal had already allowed bond yield to up and promised to scale back or reverse Treasury bill purchases by the central bank.
Central Bank Treasury Bill purchases injects liquidity into the domestic banking syste, making foreign exchange outflows greater than inflows, and hitting pegged exchange rate regimes.
Many developing countries default on external debt due to liquidity injections.
Latin American nations typically default when the Fed raises rates and they fail to arrest the boom that started when US rate were low.
Cabraal said low interest rates were important but it was not always possible to do it. (Colombo/Oct01/2021)