SL awaits Indian response for debt payment relief
Sri Lanka is still awaiting a response for its request for a 3-year debt moratorium from the Indian government to gain some breathing space for its massive debt repayment of US$4.8 billion this year, Minister and cabinet spokesman, Minister Bandula Gunawardena said.
The request was made by Prime Minister Mahinda Rajapaksa from his Indian counterpart Narendra Modi during their bilateral talks in New Delhi.
The Indian Government, in similar gesture, earlier granted a 3-year grace period for Sri Lanka to repay a debt of $30 million in 2005 to overcome the financial impact of the Tsunami disaster.
Sri Lanka’s total debt to India including interest is $962 million. Debt service payment due for this year with interest is $169.7 million.
A senior Central Bank official said the government will have to devise
a short and medium term money raising plan although the debt servicing in the first half of this year could be managed from $1.5 billion project financing and commercial borrowings,
Sri Lanka had previously planned to issue Samurai bonds, syndicated loans or Sri Lanka Development Bonds to raise money needed for debit servicing this year, he added.
It has to find money to settle a sovereign bond (ISB) due to mature in October; he said pointing out that the government will also have to raise a certain amount of commercial financing as well.
Requests for moratorium on repayment of debt by countries are not uncommon. When there are various external shocks creating sudden and fast depletion of foreign currency reserves within very short periods, there are only two ways to avert the complete collapse, economic and financial analysts said.
One is to cut down expenditure (curtailment of imports) and the other is to make a request for a moratorium on repayment of foreign debt until the country’s economy is back on track, they explained.
However the creditors (ISB’s of international banks) already having a portfolio with Sri Lanka would be worried about debt sustainability in the future.
As a consequence, future dealings with Sri Lanka would be seriously and carefully evaluated and at higher interest rates with more stringent conditions, they opined.
Bilaterally, those countries with Sri Lanka have had borrowing programmes would also be worried about difficulties of debt repayments, financial analysts added.
It is estimated that loan repayments between 2019 and 2022 would be around $21 billion.
The country’s foreign debt is estimated at $55 billion. China holds 14 per cent of this debt, Japan accounts for 12 per cent, the Asian Development Bank 14 percent and the World Bank 11 per cent.