27 July 2024 08:25 am Views - 2097
Central Bank Governor Dr. Nandalal Weerasinghe this week said he is optimistic about the definitive end to all types of debt restructuring and the beginning of debt repayment would lift Sri Lanka out of the ‘default’ status assigned by the global rating agencies.
While different rating agencies have different ways and means of assessing sovereign credit rating, the move will restore the country’s access to international capital markets for more borrowings.
“The principle, basic one is for a sovereign to get back to a normal repayment schedule after (debt) restructuring. And that will basically take out the ‘default’ tag. I am confident that we would be able to get there soon,” Dr. Weerasinghe said speaking at the post-monetary policy meeting media briefing on Wednesday.
Soon after the government closed debt deals with its bilateral creditors in June, Sri Lanka received access to bilateral credit.
For instance, Japan, being one of the largest bilateral creditors to Sri Lanka, became this week the first country to resume development funding.
Sri Lanka is expected to receive up to US $ 75 million from Japan in the next couple of weeks, with a pledge to have access to US $ 1.1 billion in the next six years.
Similarly, after the bondholders and Sri Lankan government came into an agreement in principle to restructure roughly US $ 12.5 billion in bonds in default, subject to approval from the bilateral creditors and International Monetary Fund, the expectations were high that Sri Lanka would see an upgrade in its credit rating.
Sri Lanka’s sovereign credit rating was placed under what is called the restrictive default and selective default status, after the country announced that it was going to default on most of the foreign currency liabilities in April 2022, by the duo consisting of the current Central Bank Governor and Treasury Secretary.
As Sri Lanka is now getting closer to wrapping up even the bondholder debt deals with mostly favourable terms soon, the rating agencies could also lift Sri Lanka out of these default statuses, restoring the confidence again in lending to Sri Lanka.
The rating agencies were gradually cutting the sovereign ratings on Sri Lanka since December 2019, as the then government did not conduct its policies according to how the people working in the rating agencies thought it should be done. And the people in such agencies were completely oblivious to what black swans such as pandemics could do to small economies like Sri Lanka.