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Sri Lanka on the edge of collapse as debt burden mounts 

Hit hard by the Covid-19 pandemic and economic crisis made by the Rajapksa regime , the cash strapped government is facing its most serious financial crisis in years, raising doubts about its ability to pay its creditors

Sri Lanka’s total external debt has increased in 2021 in a massive proportion,mainly with the unprecedented rise in the external debt of the Central Bank and deposit taking corporations, official data showed.  

The total external debt of the country increased to US$ 50.7 billion at end 2021 from $ 49.0 billion by end 2020. 

Although the total outstanding foreign loans of the Government recorded an increase during the year, mainly with the receipt of two foreign currency term financing facilities obtained from the CDB, the external debt stock of the Government, valued at the market price, declined from $ 28.2 billion at end 2020 to $ 27.3 billion at end 2021.

This was a result of the combined effect of the decline in market prices of Sri Lanka’s outstanding  ISBs and the repayment of an ISB that matured in  July 2021, several economic analysts said.  

A key reason for the reduction of the outstanding government external debt in 2021 was due to lack of new  borrowings from international markets, while repayment of some external debt obligations of the Government had to be met by utilising Central Bank’s reserves. 

Meanwhile, the  outstanding external debt of the Central Bank increased significantly by end 2021 in comparison to that of end 2020 due to the new bilateral currency swap arrangements with the Bangladesh Bank and the PBOC, although the international swap facility with the RBI obtained in 2020 was repaid during the year.

The outstanding external debt of deposit taking corporations also increased owing to the significant  increase in currency and deposits although the short term loans position declined markedly. 

Meanwhile, the outstanding external debt of the private sector  corporations and SOBEs declined in 2021 with the reduction in outstanding trade credit received by the private sector and with the repayment of foreign loans of SOBEs, despite the increase in foreign loans obtained by the private sector corporations. 

Further, intercompany borrowing of DIEs recorded  an increase during 2021, as a number of DIEs received intercompany loans and shareholder advances during the year.

The total outstanding external debt of the country as a percentage of GDP recorded a marginal decline during the year. 

The total outstanding external debt as a percentage of GDP stood at 60.0 per cent at end 2021, compared to  60.5 per cent  reported at end 2020, reflecting the increase in nominal GDP during 2021 compared to 2020. 

The  outstanding external debt position of the Government out of the total external debt position, declined to 53.9 per cent by end 2021 from 57.5 per cent recorded at end 2020. 

In terms of the debt maturity profile, debt with long term maturity declined marginally to 50.0 per cent of GDP by end 2021 compared to 50.4 per cent of GDP by end 2020.

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