CB Governor calls for consistency in reforms to avoid another DDO

• Asserts need to roll out reforms as planned
• Says current DDO is strong enough and consistent
• Points out proposed DDO plan is optimum solution with least burden on people
• Shares govt. borrowing expected to reduce in medium term

By Shabiya Ali Ahlam

It is essential for Sri Lanka to ensure it goes ahead with the current reform efforts, else it runs the risk of having to face another Domestic Debt Optimisation (DDO) exercise, the Central Bank cautioned yesterday.

“If Sri Lanka doesn’t continue to remain on track, there could be a second DDO. But we don’t need another DDO since the current one is strong and consistent with the expectations,” said Central Bank Governor Dr. Nandalal Weerasinghe.

He shared his views while presenting the keynote at the CEO forum organised by the Sri Lanka Chapter of Chartered Financial Analysts (CFA).

End of June, Sri Lanka announced the proposed DDO arrangement. Dr. Weerasinghe stressed this was done after a “careful analysis” of all possible options available. 

“The proposed plan would be the optimum solution with the least burden on the citizenry,” he stressed while reiterating that the Central Bank remains committed to ensuring the stability of the banking system while also ensuring the well-being of the Employees’ Provident Fund.

Dr. Weerasinghe shared that going forward, the key expected outcomes of both the DDO process and restructuring of foreign debt is the reduction of the gross financing need to below 13 percent of GDP, over the period 2027-2032 and removal of public debt to below 95 percent of GDP during the same timeframe. 

Now that the DDO process is underway, the Central Bank is actively working with the government to establish macroeconomic stability, as envisaged in the broader macroeconomic framework agreed upon under the International Monetary Fund Extended Fund Facility, he said, outlining the next course of action.

“With the debt restructuring, fiscal consolidation and reforms to state-owned enterprises underway, it is expected that the government borrowing in the medium term will reduce while the availability of credit for private sector investment will improve, thereby having a positive growth impact,” said Dr. Weerasinghe. 

In turn, economic growth is essential in the post-debt restructuring period, as it affects the ability of a country to pay its debt obligations, even after restructuring, he added. Further, Dr. Weerasinghe pointed out that the 2023 borrowing limit is not to further borrow but to pave the way for the DDO.