Sri Lanka confident of country’s debt servicing capacity despite challenges
Sri Lanka’s State Minister of Money, Capital Markets and Public Enterprises Reform Nivard Cabraal has reportedly dispelled undue fears on Sri Lanka’s debt servicing capacity.
He has noted in a statement that most economic activities have displayed a notable revival from May onwards, and this recovery is ongoing. The recent detection of a new COVID cluster is now being decisively addressed by the government of Sri Lanka, and this wave is also expected to be short-lived.
“Accordingly, the expansion of the fiscal deficit and the increase in debt levels in 2020 should not be generalised as a prolonged debt distress, but rather as a ‘one-off’ deviation from the clear fiscal consolidation path that has been well articulated in the new Government’s policy framework,” Cabraal has stated.
According to Cabraal, such decisive and bold action, along with the reduction in global petroleum prices, resulted in a substantial saving of nearly US$ 3 billion in terms of expenditure on merchandise imports in the first nine months of the year and this saving, along with the better-than-expected outcomes in terms of merchandise exports, services exports other than tourism, and workers’ remittances, is now projected to compress the external current account deficit to below 1.5% of GDP in 2020.
He has further been quoted as saying in the Daily FT that the growing business confidence due to decisive action by the government and the Central Bank of Sri Lanka (CBSL) has enabled the country to stabilise the exchange rate with only a marginal depreciation of around 1.5% so far this year, even while the CBSL was able to purchase/absorb US$ 300 million from the domestic foreign exchange market during the year.
As a result, official reserves remain close to US$ 6 billion, after settling foreign debt service repayments of around US$ 4 billion thus far during the year, including the repayment of the matured International Sovereign Bond of US$ 1 billion in October.
Cabraal has also said Sri Lankan authorities are presently negotiating a loan of US$ 700 million from the China Development Bank, which is expected to be at an interest rate and terms of repayment that are significantly more favourable than the US$ 1 billion Sovereign Bond that was just re-paid.
He has added that Sri Lanka’s entire local debt stock of about Rs. 7.7 trillion (US$ 42 billion) as at end-July is being rolled over and re-priced now at interest rates which are almost half of what was paid in 2019.
OSL take:
The statement by the State Minister is indicative of the growing economy of Sri Lanka. Sri Lanka’s geographical positioning in the Indian Ocean, ease of doing business environment and the many trade agreements as well as trade concessions enjoyed by the country have made it a business hub in the South Asian region. Also, despite external and internal challenges posed by the global Covid 19 pandemic, Sri Lanka’s economy has shown resilience with the restarting of the country’s development programme. Sri Lanka’s key economic sectors have therefore opened up many business/investment opportunities.
| Article Code : | VBS/AT/10112020/Z_3 |