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Monday November 29th, 2021

Sri Lanka to reduce ‘vulnerable’ international sovereign bond holdings: Jayasundera

ECONOMYNEXT – Sri Lanka will reduce its international sovereign bond (ISB) stocks gradually without going for new such instruments in the next few years and is expected to replace them either with another debt instrument or longer tenure borrowing, President’s Secretary P B Jayasundera said.

Sri Lanka had to repay 15 billion US dollars from the ISB alone when President Gotabaya Rajapaksa elected as the president in November 2019.

The island nation has already paid 2 billion US dollar since then and the next 500 million US dollar is due in January 2022.

Jayasundera, the top most civil servant and former finance secretary who still has the influence in economic policy and budget said the “exposure to sovereign bond should be reduced further”.

“Then we have more predictable, long term, and stable external debt portfolio,” Jayasundera told EconomyNext in an interview.

“Once the outstanding sovereign bond is brought down to say 7-8 billion US dollars, then you have a space to get the volume for a more longer term an also to replace it another financial instrument.”

“So the vulnerability of the whole debt market is contained because what we need is more equity market and less vulnerable debt market considering our situation.”

Finance Minister Basil Rajapaksa last week announced the country will not go for any commercial borrowing and will be mainly relying on concessionary loans from multilateral lending agencies.

Jayasundera said the World Bank and Asian Development Bank are coming in “big way” with the World Bank has pledged $500 million for rural road development initiatives by October and similar concessionary loans “will take care of public investments”.

“Traditional sovereign bonds are not favourable to us because we are basically moving at higher discount rate,” Jayasundara, sitting at his office at the presidential secretariat, said.

“We should make bullet payment in the next 2-3 years. Our idea is not to go for any commercial borrowing.”

No Sovereign Default

Global and local analysts say Sri Lanka is facing risk of sovereign debt default and the country’s risk of defaulting on such default is on the rise given its foreign exchange reserves has to be boosted with borrowed loans in a vicious cycle.

Already Sri Lanka’s sovereign rating has been downgraded to a junk category, far below investment grade due to risks of heavy external debt repayment.

The government has not gone for sovereign bonds under the current government as the country’s risk premium has spiked due to rating downgrade.

Jayasundera, however says people have misunderstood Sri Lanka’s debt stocks.

“I guarantee there won’t be a default,” he said.

“If somebody understands our debt profile very clearly there is no reason for anybody to fear of a sovereign debt default.”

Jayasundera said out of 4.5 billion US dollar total debt per year, only 2 billion US dollar repayment is sovereign bond including principle and interest payments.

The rest 2.5 billion US dollar loan is bilateral or multilateral.

“On bilateral loans, we have slowed down big, expensive financing projects,” he said.

“Within the numbers I have personally worked out, I don’t see any risk that Sri Lanka will default and there is the same fear in the last 2-3 years.”

“Rating agencies keep telling these and everybody is telling Sri Lanka will default. In fact, the current rating is a default rating. But Sri Lanka has never defaulted.”

“The next bullet (sovereign bond) payment is in January and that $500 million will definitely be honoured because the cash flow has been worked out on that basis.”

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