Sri Lanka’s July sovereign bond; arrangements in place to settle: CB

Sri Lanka has made arrangements to settle a billion US dollar international sovereign bond (ISB) falling due on July 27, the central bank said as the securities yield went up sharply over the past week.

“..[T]he Government of Sri Lanka has reiterated its stance of ensuring that all its debt service obligations would be met on time, thus maintaining Sri Lanka’s unblemished record of servicing all its debt-relate obligations,” the central bank said in a statement.

“Accordingly, arrangements are already in place to settle US dollars 1 billion ISBs maturing on 27 July 2021.”

Sri Lanka has been printing large volumes of money, pushing credit with central bank liquidity and triggering record balance of payments deficits.

There is a strong Mercantilist belief in Sri Lanka that monetary instability is linked to trade rather than money and credit authorities have imposed import controls. Surrender requirements to the central bank have been place on export proceeds and remittances generating more liquidity.

Sellers who were offering the July 27 bond at around 12 percent on June 14, were offered the bond around 30 percent on the first week of this month, according to Bloomberg Newswires data.

The bond which pays a 6.25 percent coupon has last traded around 97.8 cents to the dollar on July 02.

On July 05 the bond was quoted around 69/32 percent.

Sri Lanka has a clear record on repaying foreign debt and government officials have repeatedly said they want to maintain the the recrod record.

However Sri Lanka has been printing large volumes of money to keep rates down and losing forex reserves at a convertibility undertaking of 200 to the US dollar which is selectively imposed mostly on financial outflows involving state debt repayments.

Sri Lanka has seen intensified monetary instability since 2015 despite the end of a war as discretionary monetary policy with worsening anchor conflicts were adopted.