Country assures all its investors timely repayment
Rolling over Non Market borrowings hence can relieve a considerable amount of pressure on the government.
“While the country may manage with the available credit lines and short-term regulatory measures, if SL fails to secure the much-needed funding lines, the country may have to call for external support, says ‘The Sri Lankan Debt Debate: Down but not out, a policy maker’s conundrum’ Report compiled by Softlogic Equity Research.
Sri Lanka, which had honored all its debt repayment obligations in the past, has further assured all its investors of a timely repayment going forward as well. However, liquidity injections through mass-acquisition of Treasury bills were made despite Sri Lanka having to make debt repayments over the coming years. Thus, given the limited foreign currency liquidity flows the Sri Lankan Rupee has thus far weakened cf. USD 7% YTD and more than 30% over the past 5 years.
The imposition of some form of capital controls and curbs on non-essential luxury imports such as vehicles has given the country much needed breathing space as key income earners such as tourism has taken a serious hit due to the Covid-19 pandemic. These measures may resolve short term debt repayment concerns but may not be sustainable in the longer run unless SL secures more sustainable foreign funding lines such as FDIs, Tourism earnings, export earnings etc.
“Once the GoSL has visibility on robust forex inflows which assures smooth debt repayments, restrictions should gradually ease off,” the report said. With a long rich history of cooperation, the IMF has empowered Sri Lanka with multiple Standby Arrangements (SBA), Extended Fund Facilities and structural adjustments.
The largest loan was the SBA initiated post war in July 2009 of USD 2.5 Bn whilst the most recent arrangement initiated in June ‘16 for USD 1.5 Bn Extended Fund Facility (EFF). In total 5 of the 16 loan facilities have also been over the past 2 decades, in testament to the strong relationships. In 2020, the IMF prematurely ended EFF to Sri Lanka after disbursing ~USD 1.3Bn of an agreed USD 1.5Bn facility.
Repayment of the funds borrowed under these arrangements will take place in instalments from 2020 and is expected to be completed by 2028.
“Administered wisely, swaps are a neutral instrument used by countries to manage reserves. However, short term swaps may not resolve the underlying debt sustainability concerns.”
caption Principal and interest repayments likely to take around USD 4 billion on average till 2026 end