One of the glaring omissions in last week’s budget presentation was the absence of a clear and much-awaited statement on Sri Lanka’s foreign currency crisis and debt management, two vital segments in the country’s economy at present. While everything hinges on the shortage of dollars which has resulted in queues – fuel, kerosene, sugar and [...]

Business Times

Managing debt, finding dollars


One of the glaring omissions in last week’s budget presentation was the absence of a clear and much-awaited statement on Sri Lanka’s foreign currency crisis and debt management, two vital segments in the country’s economy at present.

While everything hinges on the shortage of dollars which has resulted in queues – fuel, kerosene, sugar and cooking gas – and the 50-day closure of the Ceylon Petroleum Corporation (CPC) Refinery at Sapugaskanda near Colombo, clear signals in the budget on how these issues would be resolved in the coming months would have assured investors (that is if we want to attract foreign investments) and rating agencies which have downgraded Sri Lanka’s sovereign rating, that the government was on the right track.

While economists and analysts said they were concerned over the lack of such a signal in the budget, the Ceylon Chamber of Commerce, the country’s main chamber, also alluded to this in a statement. “While the budget recognised the need for fiscal consolidation and the rebuilding of Sri Lanka’s foreign exchange reserves, it fell short on addressing the key macroeconomic challenges of managing the shortage of foreign exchange in the market and refinancing of debt in the short to medium term,” it said, adding, “The budget would have been an ideal opportunity to reassure investors, provide clarity and build confidence…”

Information sought by the Business Times this week from the Central Bank on details about the debt repayment schedule for the next 12 to 18 months, drew this response from a senior official: “… You would agree on the fact that the arrangements of forex inflows now under consideration are required to be maintained with radio silence before releasing for public information. Further, such communications with specific details require mutual consent of parties to the transaction. The Central Bank will keep such information also announced as and when finalised as we have been doing recently with forex receipts.”

Despite assurances from Central Bank (CB) Governor Ajit Nivard Cabraal that Sri Lanka has and will not default on foreign debt repayments (which admittedly is true), the country is going down a slippery slope as the shortage of dollars situation worsens. The government is depending on government-to-government contracts on securing foreign exchange – with India and Bangladesh – while the CB this week denied claims that its latest effort – the Securitised Financing Arrangement (SFA) was aimed at converting all worker remittances into Sri Lankan rupees upon receipt by licensed banks.

It said that since May 28, 2021, licensed banks are expected to sell to the CB 10 percent of voluntary conversions of worker remittances into Sri Lankan rupees on the strength of the additional Rs. 2 incentive provided by the Government on such conversions.

“While a Request for Proposals (RFP) has now been launched to explore the possibility of securitising this already existing flow to the Central Bank, the SFA will have no impact on any worker remittance, which can continue to be freely retained in foreign currency accounts in Sri Lanka or converted into Sri Lankan rupees as done in the past,” the CB said in its statement. Something is also amiss; something is not right. For example, exporters must convert all their dollar earnings after setting aside payments for inputs, salaries etc., while migrant workers are allowed to keep all their earnings in foreign currency.

The problem lies mainly on the trust factor and whether people have faith in the authorities and its political hierarchy. For example, the CB assures that there is no shortage dollars; if so, why is there a shortage in banks and why has the CPC refinery closed for the first time since its inception in1969 with Energy Minister Udaya Gammanpila saying that the closure was due to a shortage of dollars to buy crude oil. On the other hand, he says there is no shortage of fuel (blames a trade union leader for misleading people) and then points out that the country’s requirements will be imported via refined petrol and refined diesel. What about kerosene, a byproduct of crude oil? Furthermore, if there is a shortage of foreign currency, how can you buy refined products?

The government has been banking on huge loans from Oman and India to finance oil imports but they had not materialised and negotiations appeared to be inconclusive.

There are too many holes in the explanations of government ministers as to the crisis the country is facing and the fertiliser problem is no exception, with a tussle between the authorities and opposition legislators on whether it was nano urea or nano nitrogen that was being imported from India for the agriculture sector.

The country’s debt payment situation – the first time Sri Lanka has faced such a bunching of payments – is monumental According to a recent report by rating agency Fitch Ratings, debt repayments due in the period 2021 to 2026 are over US$6 billion in 2021; $6.5 billion in 2022; $5 billion in 2023; $4.8 billion in 2024; $5 billion in 2025; and $3.8 billion in 2026. This includes ISBs, Sri Lanka Development Bonds and bilateral loans. ISB repayments alone total $14 billion until 2030.

By the way, there was no call this Thursday from any friend (a normal occurrence on a daily basis), while the three friends had gathered under the margosa tree chatting. It was a busy day for me, so for the first time I didn’t listen to their conversation to get inspiration for a topic as I already had one in mind (the forex crisis).

During the week, a survey done by the Institute for Health Policy (IHP), to assess public opinion as the country recovers from COVID-19, had some startling data. It showed that increasing numbers of Sri Lankans want to leave the country, probably more than at any time in the past five years, adding that this confirmed recent observations by Prime Minister Mahinda Rajapaksa that the youth who had voted for the government are now queuing up to obtain passports to go abroad.

“About 1 in 4 Sri Lankans would like to migrate if they had the chance. The youth and the educated want to migrate the most, with around 1 in 2 of them wanting to leave the country. Of those who would like to emigrate, 1 in 4 has plans to do so,” it said. A worrying trend indeed and probably largely due to a lack of faith in the political system and governance.

As I wound up my column, Kussi Amma Sera walked in asking, “Ada monawada liyanne (What are you writing today)?”

Janathawa pita rata yana eka gena (About people going abroad),” I replied, reflecting on the brain drain that the country is facing and its socio-economic impact.

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