Sri Lanka Treasury’s internal debt service ratio moves towards a danger zone
View(s):Sri Lanka Treasury’s internal debt service ratio is moving towards a danger zone with state banks’ overdraft touching over Rs.120 billion and the balance outstanding of government’s borrowings for the current financial year showing a staggering figure of Rs. 1,579.11 billion.
According to Finance Ministry estimation a sum of Rs.1, 480 billion is needed for payment of loan installments and interest this year.
The Cabinet of Ministers has given its approval this week to the Finance Ministry to issue international sovereign bonds, to raise US$ 1.5 billion to tackle the .situation.
But analysts said Sri Lanka has to settle high cost overdrafts from commercial banks and Central Bank credit taken to bridge the budget deficit with proceeds of the $1.5 billion sovereign bond which will contribute to excess reserves in the banking system.
A senior Treasury official said, “the net cash deficit is tackled by selling Treasury bills to the Central Bank or if the bank overdraft is re-financed through the reverse repo window, the country will have to face high levels of inflation, currency depreciation, foreign reserve losses or a combination of all three”. When the cash deficit is financed by Treasury bills to the public or even a bank overdraft which is covered by public deposits or foreign inflows, the economy will be stable but interest rates could be jacked up, he added.
The capital and financial account position has weakened due to foreign exit from government securities, lower FDI inflows, and slow implementation of externally financed public and private projects .the International Monetary Fund warned.
Investor sentiment has worsened, reflecting global market volatility and concern over domestic policies, IMF said. -(Bandula)