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Sri Lanka  opens to discuss with all to restructure debt

The Government yesterday reiterated it was open for discussion with all multilateral and bilateral organisations to restructure debt, whilst confirming it has been in talks with the International Monetary Board (IMF) as well.

“The Government has been in discussion with the IMF for a certain period of time to restructure the debt of the country. We are open to all institutions and ideas,” Cabinet Co-Spokesman and Plantation Industries Minister Dr. Ramesh Pathirana said at the post-Cabinet meeting media briefing.

Although, there was no decision taken yet to seek support from the IMF, he said the option to seek support had been discussed at several cabinet meetings in recent weeks. 

“We keep our doors open. We speak to the World Bank, Asian Development Bank (ADB) and other agencies as well,” he added.

The Minister also pointed out that the $ 500 million International Sovereign Bond (ISB) was paid on time last month, while another $ 1 billion bond was due in July.

“We are in discussion with all the agencies. Hopefully we will be able to manage the current foreign reserves crisis within the six months’ time. We are trying to manage the situation, whilst taking efforts to restructure the debts,” Dr. Pathirana said.

Asked if the Government had appointed a Ministerial Committee to negotiate debt with the individual countries, he said there was nothing specific as such, adding that Finance Minister Basil Rajapaksa and Central Bank Governor Nivard Cabraal are leading dialogue with relevant authorities.

“The Finance Minister is spearheading that campaign whilst speaking to different agencies. The Central Bank Governor is also actively involved,” Dr. Pathirana said.

Meanwhile, Sri Lanka’s dollar bonds slipped with the nation’s $1bn 6.25% bonds due July 27, 2021 approaching redemption.

 The bonds have been stable, trading at 98.2 with the nation allaying concerns on the maturing bond saying that they will repay the amount. 

“Sri Lanka is clearly in a difficult situation, it is facing a major balance of payments crisis…It faces a weight of external debts falling due and has limited foreign exchange reserve coverage. 

The solution would appear to be to go to the IMF – that would likely be the least painful option.” said Tim Ash, strategist at BlueBay Asset Management

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Sri Lanka’s dollar bonds fell – its 5.875% 2022s  and 6.35% 2024s are down over 4 points to 81.5 and 65.6 respectively. 

Sri Lanka itself should restructure its loans instead of seeking the assistance of the International Monetary Fund (IMF) and the government has been reducing sovereign debts in that strategy

Government is facing a risk of sovereign debt default, analysts say, as its expected foreign inflows are less than the expected foreign outflows amid a depleting foreign reserves after the central bank’s excess money printing resulted in unabated imports despite stringent regulations to cut imports.

In a debt restructuring or a distressed debt exchange (DDE) is done by negotiators between the sovereign and a representative committee of bond holders.

However the presence of an IMF program and a sign off on debt sustainability, give confidence to bond holders to accept the re-structuring.

A fully-financed IMF program also unlocks further budget support loans if the government is willing to do growth generating reforms as well as Paris club relief.

Analysts have also warned that Sri Lanka’s reduction of government debt has come from a run-down of foreign reserves and a increasing net indebtedness of the central bank due to liquidity injections.

Speculations over President Gotabaya Rajapaksa’s administration going to the IMF are on the rise amid risk of sovereign debt default and possible collapse in the rupee currency.However, the government has strongly denied that it was going to the global lender.

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