Sri Lanka mov­ing to­wards debt sus­tain­abil­ity

Sunday Times (Sri Lanka) - - INTERNATIONAL - By Ban­dula Si­r­i­manna

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 re­sourc- es 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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