CB Governor opposed to domestic debt restructuring
Central Bank Governor Dr. Nandalal Weerasinghe has expressed confidence on the gradual recovery of the ailing economy and reaching debt sustainability without re-structuring domestic debt with forex inflows coming into normal banking channels following the ban on open account transactions.
Economic growth is projected to contract by over 8 per cent this year from the earlier projection of 7.5 per cent while inflation would come down to around 60- to 65 per cent from the earlier projection of over 70 per cent.
Foreign exchange inflows are now adequate to pay for essential food, fuel and medicine imports owing to the Central Bank’s policy measures, he claimed during a news briefing in Thursday.
Contradicting the President’s view of possible restructuring of massive domestic debt, Dr. Weerasinghe said that there was no need to restructure domestic debt at present as the monetary authority has taken measures towards debt sustainability safeguarding the banking sector.
At least at two recent public meetings, President Ranil Wickremasinghe categorically stated that domestic debt stock was serious and it needs to be restructured as well and that external consultants were looking into it.
He told the Organisation of Professional Associations (OPA) annual conference and awards ceremony held in Colombo this week that Sri Lanka’s International Sovereign Bond (ISB) holders may exert pressure on the government to restructure the domestic debt
He noted that they alone may not be keen to accept a steep haircut under a debt sustainability plan, which is a prerequisite to secure an International Monetary Fund (IMF) bailout.
However Dr. Weerasinghe disclosed that still there was no request for domestic debt restructuring and the Central Bank is fully convinced that it would be able to make it sustainable.
“The government position is to re-structure external debt,” Dr. Weerasinghe said adding that the banks liquidity position will be affected by domestic debt restructuring.
The Central Bank is holding one-to-one talks with banks to discuss ways
and means to minimise the impact on the local banking system and maintain debt sustainability.
He emphasised the need of minimising any adverse impact on the banking system to maintain financial stability which will help expedite economic recovery.
The Governor expressed the belief that external creditors could recover their liabilities faster than expected with relief on dues by not resorting to domestic debt restructure.
He revealed that an International Monetary Fund (IMF) team will be visiting Sri Lanka by the end of this month to reach a Staff-Level Agreement on macroeconomic programme and debt restructuring target in the next 10 years.
The country’s forex inflows were much better at present following the restriction on non-essential imports and prohibition of open account transactions of importers and high export earnings.
Essential food commodity importers were given relief to import essential food items on open account transactions on a directive from the government and released them with required foreign exchange via banks, he revealed.
This has helped to tackle a shortage of essential food items and reduce prices to some extent adding that the ban will be re-imposed soon.
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