Foreign debt servicing continues to sustain in fiscal tightening
Fiscal tightening of the treasury and the Central Bank’s accommodative monetary policy with flexible exchange rate will sustain the economic recovery, servicing debts in a timely manner, officials disclosed.
The authorities are getting ready to settle maturities of Sri Lanka Development Bonds (SLDB) within the next two months.
Answering a question raised by Business Times at the recent Monetary Policy review media conference conducted virtually, the Central Bank‘s Superintendent of the Debt Department Dr. M. Z. M. Aazim said that debt service payments are being met in a timely manner on account of SLDBs and other state debts.
He noted that domestic banks will also be encouraged to purchase SLDBs as it possessed adequate foreign exchange reserves amounting to around US$1 billion.
While a high number of bonds will mature throughout the year, the peak will fall in the third quarter, when rupee bonds worth $1.2 billion and SLDBs totalling $1.3 billion will have to be paid back, he added.
He reiterated that this repayment is possible due to the maintenance of sustainable, medium-term debt management.
Sri Lanka has managed to roll over $ 693 million of maturing SLDBs helped by post-auction subscription for 9- month bonds, Central Bank data showed.
This successful debt rollover has been made after recent failures in the last two auctions of the SLDBs which were heavily under subscribed, economic experts said.
Import restrictions currency swaps and debt roll over have helped to service foreign debts up to now; they said adding that there will be difficulties in attracting foreign investors to dollar-denominated bonds in upcoming auctions.
One of the remaining options is to seek assistance from China to resolve this foreign debt servicing issue, they suggested.
International financial agencies such as the IFC and AIIB have granted funding for Sri Lankan corporate and financial sector, he said adding that the government has secured financial assistance from the ADB and the World Bank, Central Bank revealed.
In addition the government is expecting $ 780- 800 million under the Special Drawing Rights facility of the International Monetary Fund (IMF), the Central Bank confirmed.
The IMF director board will take up this matter in June and the money will be disbursed by August.
The assessment of that support has taken longer than for other countries due to Sri Lanka's daunting economic challenges and high public debt, IMF sources divulged.
If Sri Lanka fails to engage with the IMF due to policy differences with the Fund, a successful economic restructuring would be difficult, a veteran economic analyst said.
Exit yields of maturing bonds would be significantly higher than the 10- 11 percent, compared to other countries with an IMF programme, he said.
If Sri Lanka fails to engage with the IMF due to policy differences with the Fund, a successful economic restructuring would be difficult, a veteran economic analyst said.