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Improved transparency could lead to higher haircut: Dr. Weerasinghe
If the island nation improves transparency as suggested by commercial creditors and successfully reduces corruption while boosting government revenue, there is a chance the proposed 28 percent haircut could be increased to around 35 percent, according to Central Bank Governor Dr. Nandalal Weerasinghe.
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Dr. Nandalal Weerasinghe |
The governor noted that what is crucial is the reduction in relief being on par with what bilateral parties receive, even if it’s not a haircut.
“If bilateral creditors do not offer a haircut, they may provide a similar form of relief. According to the IMF, if the economy performs as projected, achieving sustainability with a 28 percent haircut is feasible,” he said.
Dr. Weerasinghe explained that for instance, if the country grows at an average of 3 percent, it can meet this requirement. However, if growth reaches 5 percent, creditors expect the haircut to reduce from 28 percent to 20 percent.
This scenario implies that as government revenue increases with higher growth rates, a portion of these gains should be allocated to bondholders.
Moreover, if the growth rate falls below 3 percent, there’s a possibility of negotiating a higher haircut, potentially reaching 35 percent or 40 percent instead of the initial 28 percent, he said.
“This provides a safeguard in case our country’s economic growth slows down unexpectedly,” said Dr. Weerasinghe.
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