By: Staff Writer
July 28, Colombo (LNW): Central Bank expressed optimism this week about the imminent conclusion of all types of debt restructuring and the start of debt repayment, which he believes will remove Sri Lanka from its ‘default’ status assigned by global rating agencies.
Although different rating agencies have various methods for assessing sovereign credit ratings, this move is expected to restore Sri Lanka’s access to international capital markets for further borrowing, Governor of the CB Nandalal Weerasinghe said.
“The basic principle is for a sovereign to return to a normal repayment schedule after debt restructuring, which will effectively remove the ‘default’ label, he claimed adding that .he is confident we will achieve this soon,.
He was speaking ar a media briefing following the monetary policy meeting on Wednesday.Following the government’s debt agreements with bilateral creditors in June, Sri Lanka gained access to bilateral credit. For example, Japan, one of Sri Lanka’s largest bilateral creditors, resumed development funding this week.
Sri Lanka is anticipated to receive up to $75 million from Japan in the next few weeks, with a commitment to access $1.1 billion over the next six years.
Similarly, after the Sri Lankan government and bondholders agreed in principle to restructure about $12.5 billion in defaulted bonds, pending approval from bilateral creditors and the International Monetary Fund, there is hope that Sri Lanka’s credit rating will improve.
Sri Lanka’s sovereign credit rating was downgraded to restrictive default and selective default status after the country declared it would default on most foreign currency liabilities in April 2022. This decision was made by the current Central Bank Governor and Treasury Secretary.
As Sri Lanka nears the completion of bondholder debt deals with generally favorable terms, rating agencies might lift the country out of default statuses, thereby restoring confidence in lending to Sri Lanka.
Rating agencies had been gradually downgrading Sri Lanka’s sovereign ratings since December 2019, as the previous government did not follow policies in line with the agencies’ expectations. Additionally, these agencies were unaware of the significant impact that unforeseen events, such as pandemics, could have on small economies like Sri Lanka.
Following the completion of three critical steps in its debt restructuring—finalising Domestic Debt Optimisation (DDO), signing agreements with the Official Creditor Committee and China Exim Bank, and reaching consensus with bondholders—Sri Lanka is now on track for a potential rating upgrade, Finance State Minister Shehan Semasinghe said.
He emphasised that while the next goal is a rating upgrade, the country must work diligently to achieve this and move past its current default status.
