CB to unveil new 9-month programme to boost confidence

• Programme to be unveiled by end of March after meeting funding targets set out in six-month  road map
• Says gross reserves will be increased to cover a minimum of four months worth of imports by end-March
• Plans to reduce ISBs to US $ 10bn and  grow economy to US $ 100bn
• Sees no need to hike policy rates; stresses situation can be handled with current interest rates 

By Nishel Fernando
While expressing confidence in meeting the external funding targets set out in the six-month road map, the Central Bank plans to unveil a new nine-month programme by the end of this March to continue with its debt restructuring efforts, with the overall external debt-servicing obligations standing at US $ 6.9 billion for the year.

“Everyone doubted that we will increase our foreign exchange reserve position to US $ 3.1 billion at the end of last year but we met that target. By the end of March, we will announce a new programme for the next nine months and thereafter. This will bring confidence to the people that there’s a clear path that we follow,” Central Bank (CB) Governor Ajith Nivard Cabraal yesterday announced, joining a programme at the Government Information Department.

By the end of March, he assured that the country’s gross official reserves would be enhanced to cover a minimum of four months worth of imports,  

as stipulated in the six-month road map. Dismissing the criticism by the economists and other experts on the way the government is handling the prevailing forex and debt crises, Cabraal outlined that the government is in fact restructuring its external debt portfolio sans the International Monterey Fund (IMF) and avoiding any pain to the creditors.   “We are actually restructuring our debt portfolio. So, what we are doing is exactly what people have been asking for. But we are doing this with one difference, without inflicting any pain to the investors, who had supported Sri Lanka. We are making adjustments to our debt portfolio, so we can pace the situation much better in the longer term as well as in the shorter term,” he elaborated.

Accordingly, he noted that the government has already engaged with the bilateral creditors to delay the debt repayments, with lower interest rates, while the securitisation of certain income flows, monetisation of certain non-strategic assets and currency swap lines are to be used to settle the maturing International Sovereign Bond (ISB) payments.

“Our intention is to reduce the ISBs to a level of US $ 10 billion and then grow the economy to a level of US $ 100 billion,” he said.

Further, he assured that the government would honour all the debt repayments to the creditors. “In the beginning of 2021, we only had US $ 5 billion in our foreign reserves but we settled US $ 6 billion of external debt-servicing obligations and we maintained a balance of US $ 3 billion,” he pointed out. Meanwhile, Cabraal also noted that the CB is gradually reducing its Treasury bill holdings in order to curb the excessive money supply, which has partially contributed to the prevailing high inflation.  However, he said he didn’t see a need to increase the policy interest rates to restrain the current inflationary environment at the moment, while noting that the CB would keep a watchful eye on the developments. 
“The situation can be managed with the current interest rates,” he said.