SL’s external debt rises $ 5.4 b in 2017: CB

• Total debt increased to $ 51.8 billion, rises to 59.5% as a percentage of GDP 
• Capital repayments hit to $ 3.1 billion, interest payments reach $ 1.4 billion from $ 1.2 billion in 2016 
• Bunching of debt from 2019 remains a concern says Central Bank, warns rising global interest rates could raise debt servicing cost

Sri Lanka’s total external debt increased by $ 5.4 billion last year, raising the country’s total debt to $ 51.8 billion by end-2017, the Central Bank said in its latest annual report. 

With the increase in government external debt, the total outstanding external debt of the country as a percentage of GDP increased to 59.5% by the end of last year from 56.8% at the end of 2016. The Government raised $ 4 billion in 2017 by issuing an international bond, and program and project loans, the Central Bank added.   

“Positive net inflows to the government securities market further contributed to the higher external debt position of the government. Outstanding external debt of deposit taking corporations declined by $ 79 million to $ 8.7 billion, mainly due to the decline in debt securities holdings of commercial banks. A notable increase was recorded in the outstanding external debt of private sector corporations, inter-company lending of direct investment enterprises during 2017,” the report said.    

Nonetheless the long-term portion of the total external debt increased, albeit marginally, to 85.2% in 2017, compared to 84.2% in 2016. “With a parallel decline in short-term debt showing a smooth transition towards longer-term maturities. Subsequent to the increase in government eternal debt, the share of government debt in total outstanding external debt stood at 60.7% by end 2017 compared to 58.6% in 2016.” 

Foreign debt service payments, which consist of capital repayments and interest payments, continued to increase in 2017. Capital repayments decreased to $ 3.1 billion in 2017 from $ 3.2 billion in 2016 of which general government account for $ 1.3 billion. Interest payments increased moderately to $ 1.4 billion from $ 1.2 billion in 2016. 

“The decline in interest payments by the private sector and deposit taking corporations was outweighed mainly by the increase in interest payments on the general government debt obligations. Since the surge in debt service payments was lower than the increase in earnings from merchandise exports and services, total external debt service payments such as a percentage of the export of merchandise goods and services declined to 23.9% in 2017 from 25.6% in 2016. Further, as government debt represents the major part of the country’s debt stock, government debt service payments accounted for 53% of total debt service payments last year.” 

The Central Bank annual report reiterated that bunching of maturities of external sector liabilities, particularly with repayments doubling from 2019 to 2023, remained a concern in the short to medium term. 

“The overall increase in external debt of the country will also have a significant impact on the external current account through higher interest payments. The global interest rates demonstrate an increasing trend due to recent interest rate hikes announced by the US Federal Reserve with expectations of further hikes by major central banks. The rise in interest rates is likely to have an impact on Sri Lanka’s external sector by way of increasing debt servicing cost.”