ECONOMYNEXT – Sri Lanka will not default on sovereign bonds, Central Bank Governor Nivard Cabraal said amid calls to default on a 500 million dollar bond maturing on January 18 as foreign reserves ran low.
“There will be no default, disorderly or otherwise,” Governor Cabraal said. “We do not want to promote a default culture.”
He said the negative fallout from default will be greater than the benefits.
Sri Lanka is running out of reserves amid low interest rates and is also facing difficulties in paying for day to day imports.
There is a billion US dollar bond due in July and the country ended the year with 3.1 billion US dollars of reserves, with the drawdown of a swap with China.
At least three economists from two think tanks have called for reserves to be conserved for imports and not to pay debt.
However any reserve sale for imports triggers automatic money printing (sterilization of a dollar sale) under a policy rate, creating further foreign exchange shortages not just for debt but for imports.
Others have called for an International Monetary Fund bailout and debt restructuring along with tighter monetary policy and higher taxes. (Colombo/Jan08/2021)