CB dispels concerns over economic stability post-debt restructuring

From left: Senior Deputy Governor Yvette Fernando, Central Bank Governor Dr. Nandalal Weerasinghe, Deputy Governor K.M.A.N. Daulagala and Director Economic Research Dr. P.K.G. Harischandra
PIC BY PRADEEP PATHIRANA

• Says post-restructuring debt service payments capped at 4.5% of GDP, down from current 9.4%
• Points out debt restructuring unnecessary if returning to previous state; says restructuring is aligned with repayment capacity
• Confident in repaying US $ 3bn yearly post restructuring, as opposed to US $ 6bn

The Central Bank last week dismissed the claims that the seemingly stable economic situation currently being experienced after last year’s crisis would be disrupted when the country starts repaying its loans to foreign creditors, following the debt restructuring.
“I have seen some experts make such claims. But debt service payments after restructure will be a maximum of 4.5 percent of GDP,” Central Bank Governor Dr. Nandalal Weerasinghe told the post-monetary policy presser held last Thursday.
He pointed out that the current debt service payments, as a percentage of GDP, stands at 9.4 percent.
“So, that means, will be obligated to settle only around half of the original repayment amount. If Sri Lanka’s initial annual loan payment stood at US $ 6 billion, post-debt restructuring, this sum will be significantly reduced to approximately US $ 3 billion,” Dr. Weerasinghe said.

“I believe, we can repay US $ 3 billion a year,” he added.
Dr. Weerasinghe pointed out that the 4.5 percent forex debt target for the period of 2027-2032 is calibrated on the country’s ability to generate and sustain forex earnings by way of exports, remittances, etc. as well as its historical levels of foreign borrowing.
“We intend to restructure the country’s loans because we have the capacity to repay. What we are negotiating is to bring down the country’s debt pile to an affordable level. That’s why we may ask for grace periods, lower interest rates or haircuts,” he noted.  

“If we were to go back to the previous state, there would be no reason to conduct debt restructuring,” he pointed out.
“Our target is to maintain the foreign reserves at higher levels and increase them to US $ 10 billion, from the current US $ 3.5 billion levels while repaying loans. If the reserves come down when we start repaying, then there is a problem,” he stressed.
Meanwhile, Dr. Weerasinghe drew the attention to the fact that Sri Lanka is continuing to repay the loans taken from multilateral agencies such as the Asian Development Bank and World Bank and swap facilities entered with regional central banks, despite the debt standstill announced in April 2022.