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State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal speaks to reporters flanked by Finance Ministry Secretary S.R. Attygalle and Central Bank Governor Prof. W.D. Lakshman during the joint press conference yesterday - Pic by Ruwan Walpola
By Uditha Jayasinghe
Targeting debt repayments of $ 4.5 billion in 2021 the Government yesterday said it was exploring multiple options to boost foreign exchange reserves including a $ 1 billion SWAP agreement with India, attracting investment to the securities market and possible Panda and Samurai bonds, as well as receiving $ 700 million in a syndicated loan from China.
State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal, Finance Ministry Secretary S.R. Attygalle, and Central Bank Governor Prof. W.D. Lakshman, holding a joint press conference, emphasised that the Government is ready and able to meet all debt repayments.
The trio also severely criticised the recent sovereign rating downgrade done by international rating agency Moody’s, and insisted that it was a “premature” and “unfair” move as the Government had already readied for the $ 1 billion sovereign bond repayment on 2 October and was putting the finishing touches on Budget 2021 that will set out the policy aims of the Government in November. Sri Lanka’s next large debt repayment of $ 1 billion is in July 2021.
“We have sufficient reserves to meet our debt obligations without default. There will be no interruptions whatsoever,” assured State Minister Cabraal, who insisted that the Government had taken steps well ahead of time to restrict imports and protect reserves precisely to meet debt obligations. He pointed out that according to Central Bank estimates the resultant reduction in the import and fuel bills would save Sri Lanka about $ 2 billion, which would also help top up reserves.
“Import restriction was an important decision by the Government. It looked at the situation and took an early decision that was in favour of investors and the repayment objective. It was a conscious call and as a result we did have some difficulties because of curtailed imports, but as conditions improved Sri Lanka was able to ease those import restrictions and we are gradually coming back to normalcy,” he said.
In addition to savings from cheaper oil and import restrictions, the Government was also continuing negotiations with India for a $ 1 billion SWAP, which is in addition to the $ 400 million it received in July. Sri Lanka will also receive $ 700 million as the second tranche of a $ 1.2 billion syndicated loan from the China Development Bank. The first $ 500 million was transferred in March this year.
The Government will also revisit a $ 500 million Samurai bond, which the Central Bank began laying the groundwork for in 2018, and possibly a Panda bond as well, Cabraal said. Sri Lanka could offer these bonds “sooner rather than later,” depending on market conditions, the State Minister added. A $ 1 billion Repurchase arrangement with the US Federal Reserve, announced in July, also made the list.
An agreement with the International Monetary Fund (IMF) has also not been ruled out, Cabraal conceded but did not give any details. Responding to a question, he confirmed Sri Lanka was not keen to avail itself of the IMF’s Rapid Credit Facility introduced to help countries deal with the fallout from the COVID-19 pandemic earlier this year as it did not provide significant funds.
“We have been able to manage without help from the IMF. Sri Lanka managed the crisis well and the facility would only have provided $ 125 - 200 million.
“Sri Lanka has done excellently well in the containment as well as handling of COVID-19 and this has been recognised by the world. No citizen was left behind and all indications are that the economy is recovering well. We predicted that there would be a “V” shaped recovery and that is what is now being experienced.”
Sri Lanka’s September exports have also earned $ 1 billion, Treasury Secretary Attygalle said.
Other reforms were also being planned to support stronger growth, according to Cabraal, who said the Government wants to push Sri Lanka to the 25th rank in the Ease of Doing Business index compiled by the World Bank, by 2025. Sri Lanka is currently languishing in 99th position out of 190 countries.
Cabraal said the Government was committed to strengthening the economy and reducing the debt to GDP ratio to 70% by 2025. Moody’s in their latest downgrade warned that the debt to GDP ratio could reach 100% next year as Sri Lanka struggles with debt sustainability amidst slow growth.
Central Bank Governor Prof. W.D. Lakshman stressed that the rating agency had painted an unrealistically gloomy picture of Sri Lanka’s economy and pointed out that international rating agencies were frequently faulted in academic circles for making detrimental statements that are unrealistic, and could make an existing crisis worse.
“We have already lodged an official protest with Moody’s over this downgrade and hope that they take our response into account in their next update,” he said.
