Sri Lanka‘s external debt volume increases in rupee fluctuations
Sri Lanka’s present foreign currency-denominated debt volume has increased as a result of rupee fluctuations despite the suspension of all external debt repayments, Finance Ministry sources spelled out.
According to the ministry’s quarterly debt report 2024,
Sri Lanka’s government debt has increased by US$ 4 billion to $100 billion as at end March 2024 from end 2023.
Of this total external debt, 57 per cent is domestic debt, 37 per cent external debt and 15 per cent commercial loans.
The present economic constraints needs to be viewed not in terms of present debt volume but in the larger trend and macroeconomic connection between rising government debt and other macro aggregates, a senior official of the ministry explained.
The appreciation of the
Sri Lankan rupee has sent the rupee value of the foreign currency-denominated debt of the government increasing by significant proportions despite the suspension of new borrowings, he revealed.
The biggest driver of the increase in the dollar value of the debt stock during this period is the appreciation of the rupee from Rs. 324/US$ in end December 2023 to Rs. 301/US$ in end March 2024, a finance ministry statement confirmed.
Naturally, this leads to the dollar value of the component of rupee denominated domestic debt increasing even in the case of the absolute rupee debt remaining unchanged, it added.
In reality, the rupee denominated domestic debt has increased only by about 1.5 per cent during the first quarter of 2024. However, when these rupee figures are converted into dollars, it increases far more, reflecting the appreciation of the rupee against the dollar during the first quarter of 2024.
A country’s debt increases in absolute terms when government expenditure exceeds government revenue (budget deficit), and borrowings are made to finance such deficits.
In Sri Lanka, successive governments have been running with budget deficits and as a result, the debt has accumulated over the years due to borrowings made to finance such deficits.
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