New revelations over SL’s foreign debt default
The Government’s sudden declaration of a pre-emptive negotiated default of external debt on April 12 this year has been made at a time where there was an expected forex inflow of over US$10.7 billion in the pipeline as at April 4 to boost foreign reserves, an official forex inflow status report based on Central Bank data submitted to the Treasury, has shown.
The foreign debt default was announced jointly by then Finance Minister Ali Sabry and Central Bank Governor Dr. Nandalal Weerasinghe on April 12, a few days after the confirmed and expected foreign inflows were known.
According to the report, the confirmed inflows were India – $1.5 billion, India ACU facility $500 million and China $2.5 billion while expected inflows included West Coast Power investment $250 million, Hilton divestment $500 million, tourism inflows $900 million, green bonds $2 billion, People’s Bank of China facility $1.5 billion and Qatar $1 billion.
These forex receipts would have enabled the Government to settle the maturing payments due in 2022, while also rolling over several other existing loans, including Sri Lanka Development Bonds and Foreign Currency Banking Unit (FCBU) loans, a top government official revealed.
The April 4 announcement resulted in serious international repercussions, some economic experts warned. However there were other economists who said the default was inevitable and not announcing it earlier led to the current forex shortage.
Based on that announcement of pre-emptive negotiated default of external debt by the Central Bank, the International Ratings Agencies placed Sri Lanka’s sovereign debt rating at a default status.
Global ratings agency S and P Global on Monday slashed its rating on Sri Lankan bonds to ‘D’, representing default, following missed interest and principal payments.
The country which had defaulted on a bond payment earlier this year and has $12 billion in overseas debt with private creditors has been battling the worst financial crisis in its 74 year history of independence.
One economist stated that when a sovereign forex loan is not repaid, the credibility of the country will be lost, and investors will avoid that country.
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