State Minister of Money, Capital Markets and Public Enterprises Reform Nivard Cabraal, in a special statement, dispelled undue fears on Sri Lanka’s debt servicing capacity. 

He said that most economic activities have displayed a notable revival from May onwards, and this recovery is ongoing. The recent detection of a new COVID cluster is now being decisively addressed by the Government, and this wave is also expected to be short-lived. 

“Accordingly, the expansion of the fiscal deficit and the increase in debt levels in 2020 should not be generalised as a prolonged debt distress, but rather as a ‘one-off’ deviation from the clear fiscal consolidation path that has been well articulated in the new Government’s policy framework,” Cabraal added. 

Such decisive and bold action, along with the reduction in global petroleum prices, resulted in a substantial saving of nearly $ 3 billion in terms of expenditure on merchandise imports in the first nine months of the year. This saving, along with the better-than-expected outcomes in terms of merchandise exports, services exports other than tourism, and workers’ remittances, is now projected to compress the external current account deficit to below 1.5% of GDP in 2020.

He also said growing business confidence due to decisive action by the Government and the Central Bank has enabled the country to stabilise the exchange rate with only a marginal depreciation of around 1.5% so far this year, even while the Central Bank was able to purchase/absorb $ 300 million from the domestic foreign exchange market during the year. 

As a result, official reserves remain close to $ 6 billion, after settling foreign debt service repayments of around $ 4 billion thus far during the year, including the repayment of the matured International Sovereign Bond of $ 1 billion in October. 

Cabraal also said Sri Lankan authorities are presently negotiating a loan of $ 700 million from the China Development Bank, which is expected to be at an interest rate and terms of repayment that are significantly more favourable than the $ 1 billion Sovereign Bond that was just re-paid. 

He said Sri Lanka’s entire local debt stock of about Rs. 7.7 trillion ($ 42 billion) as at end-July is being rolled over and re-priced now at interest rates which are almost half of what was paid in 2019. 

See Page 6 for the full text of the statement. 

Sri Lanka debt tumbles from best to worst in Asia on virus pain