Sri Lanka will be continuing debt servicing with adequate foreign reserves and foreign exchange inflows into the country without defaulting a cent, State Minister of Finance Ajith Nivard Cabraal told the Business Times. He noted that the country’s fiscal and monetary authorities are taking every possible action including further restricting non essential imports and careful [...]

Business Times

Sri Lanka continues debt servicing without defaulting, says State Finance Minister

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Sri Lanka will be continuing debt servicing with adequate foreign reserves and foreign exchange inflows into the country without defaulting a cent, State Minister of Finance Ajith Nivard Cabraal told the Business Times.

He noted that the country’s fiscal and monetary authorities are taking every possible action including further restricting non essential imports and careful handling of foreign reserves for essential imports.

The Finance Ministry with the recommendation of the Central Bank Monetary Board has imposed several measures curtailing outward remittances on Capital Transactions for a period of three months.

The aim is to preserve the foreign currency reserve position of the country, minimising the existing pressure on the exchange rate and considering the possible negative impact to the Sri Lankan economy due to COVID-19, he said, adding that none of the other creditors who hold 83.3 per cent of Sri Lanka’s debt seem to show any sign of concern or stress about “our” repayment ability.

However financial analysts predicted that Sri Lanka’s foreign debt problem would aggravate to high proportions this year owing to contraction of trade, low tax revenue and the lack of foreign direct investment,

Sri Lanka faces a pre-determined short-term drain of US$ 6 billion on its foreign exchange reserves in 2021, based on disclosures as of end-December 2020.

Of this $6 billion government external debt service is amounting to $4 billion ($1.3 billion of interest and $2.7 billion of principal service).

January and July are large outflow months, with $500 million in January (already serviced) and a $1 billion bond repayment in July, financial analysts revealed.

The rest of the debt service is evenly spread throughout the year. In addition to external debt service, the government has $1.3 billion of Sri Lanka Development Bond (SLDB) maturities to be funded, with large maturities in January ($ 195 million) and May ($694 million).

The government has found it difficult to refinance SLDB maturities locally given tightening dollar liquidity conditions; this led to a shortfall of $450 million in 2020.

In an attempt to prove Sri Lanka’s commitment in debt servicing obligations, negotiations are underway with some foreign governments and multilateral institutions, Central Bank Governor Prof W.D. Lakshman told a panel organised by a Sri Lankan think-tank on Wednesday.

“The Central Bank is expecting some of these negotiations to materialise in a matter of weeks,” he said.

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