Sri Lanka aims to cut its foreign currency debts and short-term domestic borrowing under a medium-term debt management plan, the central bank said on Friday, after it failed to achieve its debt-to-GDP target last year.

The Central Bank, releasing a report on Sri Lanka’s public debt management in 2012, said it aims to reduce foreign currency debts to 30 percent of total outstanding debt by 2016 from last year’s 43 percent.

The $59 billion economy’s total foreign currency debt stood at 2.6 trillion Sri Lanka rupees ($20.67 billion) by end-2012 when total outstanding debt was $47.43 billion.

“Our annual financing programme is arranged in such a way to minimize our reliance on short-term as well as foreign debt. That’s the strategy,” C.J.P. Siriwardena, an assistant governor at the central bank, told Reuters.

Sri Lanka aims to cut shortterm domestic debt to 20 percent of total domestic debt by 2016 from 25 percent or 813.3 billion rupees last year.

The Indian Ocean island nation has been mainly borrowing due to a shortfall in government revenue aggravated by near three-decade war that hit foreign direct investments (FDI).

After the war ended in May 2009, FDI picked up to a record high of just over $1 billion last year, but this was only half of the target.

Low FDI has prompted President Mahinda Rajapaksa government to rely heavily on foreign commercial borrowing mainly from China to complete ambitious post-war infrastructure projects.

The $59 billion economy last year had a debt-to-gross domestic product ratio of 79.1 percent, central bank data showed. This missed a target of 77.7 percent, mainly due to depreciation of about 10 percent depreciation in the rupee currency.

The International Monetary Fund, which completed a $2.6 billion loan disbursement last year, has raised concern over Sri Lanka’s public debt, one of the highest among emerging market economies at more than 600 percent of its tax revenue.

The loan helped Sri Lanka to cut its budget deficit to 6.4 percent of GDP last year from

an eight-year high of 9.9 percent in 2009.

(Source : REUTERS)