Sri Lanka’s ability to meet external debt repayments has become bleak owing to further increase in external funding stress, reflected in a narrowing of funding options and weaker refinancing capacity economic experts warned.
The country’s debt servicing obligations over 2021-2025 are substantial, amounting to an average of US$4.3 billion per year, they added.
External debt service amounts to around $3.8 billion from June to December 2020, including a $1.0 billion international sovereign bond payment due in October.
However Senior Deputy Governor of the Central Bank Dr. Nandalal Weerasinghe stated that Sri Lanka has more than sufficient reserves to meet its debt servicing obligations and there is no issue with debt repayment for this year.
The country has already received $ 400 million under the SAARC SWAP facility. That is why the reserve level has gone up to $7.2 billion and to repay the October maturity he pointed out.
He claimed that the country has more than sufficient comfortable level of reserves so that Central Bank can meet that debt service payment without any issue.
Dr. Weerasinghe noted that Sri Lanka has to spend $2.5 billion within the next four months from the country’s foreign reserve of $7.2 billion and there will not be a debt repayment issue this year.
The government will come up with a borrowing strategy and then CB can look at that and take necessary action, he added.
The CBSL entered into a $ 400 million bilateral currency SWAP agreement with the Reserve Bank of India (RBI) on, 24 July 2020 under the Framework on Currency Swap Arrangement for South Asian Association for Regional Cooperation (SAARC) countries for 2019 - 2022.
The intention of the CBSL in entering into this Swap agreement was to be able to maintain sufficient short-term foreign exchange liquidity while preserving the foreign currency reserve position of the country intact.
Under the Swap agreement, $ 400 million will be received by Sri Lanka, initially for a period of 3 months and will be rolled over twice each with a 3 months tenor, subject to agreement on terms and conditions of the existing SAARC Framework.
(LIN)