Sri Lanka moving towards debt sustainability

The Government will raise money through the issuance of sovereign bonds in the offshore capital market next year to beef up funds for bunched-up debt repayments amounting to a staggering US$13.8 billion before its maturity period from 2019 to 2022, a senior Finance Ministry official said.

 

There are no repayments for international sovereign bonds in 2018; he said adding that the debt servicing will be maintained without any hindrance as scheduled.
Sri Lanka has commenced a debt sustainability process under the supervision of the IMF, he disclosed. He noted that the Central Bank will go to the market and use financial resources to tackle the bunching-up debt that is going to be experienced from 2019 onwards while concentrating on liability management. A framework is also being worked out for liability management, he said pointing out that there will be a peak in domestic debt repayments in 2018.

A Liability Management Act will be enacted in parliament soon to create the breathing space to address the bunching of external debt from 2019, Governor of the Central Bank Dr. Indrajit Coomaraswamy said at a recent public meeting. This will relax the ceiling on Government borrowing set out in the Appropriation Act to raise financing to reduce the costs of external obligations; he said adding that this will serve to reduce roll-over risk. The ‘Sri Lanka Enterprise’ Budget 2018 had proposed to permit the Bank of Ceylon (BoC) and the People’s Bank to raise debt and equity capital overseas. Previously, the BoC and the National Savings Bank had gone to the international markets to raise capital.

According to Central Bank statistics, Sri Lanka has to pay $2.56 billion in 2018, $3.99 billion in 2019 and $3.46 billion in 2020 for debt servicing. The unsustainable debt burden can only be resolved through prudent policies; proactive liability management, and above all, export transformation, The Government also plans to utilise the proceeds of the divestment of public assets to pay the debt, the Governor revealed.

The long-lease of the Hambantota port will generate much needed non-debt creating flows for liability management which is essential to address external debt repayments from 2019 onwards, he added. Meanwhile S&P Global Ratings recently revised its outlook on Sri Lanka to ‘Stable’ from ‘Negative’. The ‘Stable’ outlook reflects its expectation that the Government will maintain the reform momentum over the next 12 months and smoothen the upcoming surge in debt redemptions, particularly in 2019, S&P said in a media release.

An investment house will be established to facilitate liability management; a senior Finance Ministry official said adding that the National Debt Management Act will also be presented in parliament shortly The debt to GDP ratio increased to 79.3 per cent in 2016 from 77.6 per cent in 2015 reflecting the debt financing of budget deficit, lower nominal GDP growth rate and the significant rupee depreciation on the stock of foreign currency denominated debt.

According to the Finance Ministry’s Fiscal Management Report – 2018, the ratio will gradually reduce to 70 per cent in 2020 with the expected lower fiscal deficit supported by a higher economic growth. The government will implement a forward looking liability management strategy for domestic and foreign debt portfolios under the Medium Term Debt Management Strategy (MTDS) as a measure of resolving high debt stock.

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