Easter attacks pose no major threat to Sri Lanka’s debt repayment ability: IMF

• Says market pressure on SL following attacks remains contained
• Points out SL can go back to tapping int’l capital markets as soon as security situation improves
• Maintains 3.5% percent economic growth forecast for this year despite attacks

By Indika Sakalasooriya

The recent Easter Sunday bombings and the resultant economic slowdown don’t pose a major threat to Sri Lanka’s debt refinancing capacity, according to the International Monetary Fund (IMF).

“We don’t see any major risk to the authorities’ refinancing plans at this stage based on the latest developments,” IMF’s mission chief for Sri Lanka, Manuela Goretti, said in a teleconference with reporters in Colombo yesterday.

She said market pressure on the country in the aftermath of the horrific terror attack by a homegrown jihadist group with links to the Islamic State that killed more than 250 people, had remained contained.

“There has only been a small increase in international sovereign bond spreads—about 40 basis points. The domestic bond market has remained stable. The rupee has also stabilized and has recorded a slight appreciation this week.”

Sri Lanka successfully repaid two large bond issuances fully amounting to US $ 1.5 billion in January and April this year. The next large international bond repayment is due in October 2020.

Goretti said Sri Lanka could go back to tapping international capital market for funds as soon as the country’s security situation is stabilized. 

“Sri Lanka remains open to international capital markets, and we are confident that as soon as the security situation in the country is stabilized, the authorities will go back to tapping the markets for funds.

“We don’t see any major risk at this point given the profile of debt maturities and market conditions in the country,” she said.

The main three global rating agencies downgraded Sri Lanka following the October 26 political crisis last year, saying that the political uncertainty had increased the island nation’s debt refinancing risks. After the resolution of the political impasse in December, Sri Lanka in March this year successfully raised US $ 2.4 billion from international capital markets through US $ 1 billion 5-year and US $ 1.4 billion 10-year issuances.

Meanwhile, Goretti said IMF was maintaining this year’s 3.5 percent growth forecast and the medium-term five percent forecast on Sri Lanka despite the terror attacks that disrupted the country’s economic activity extensively. 

She said it was too early to assess the impact of the recent shocks on Sri Lanka’s economy as official data or clear information was not yet available.

“So it would be speculative for us to revise our growth forecast at this juncture. But as we always do, we will continue to monitor the developments and will update our macro framework once we have more data points and additional information,” she said.

A recent Reuters poll of 10 analysts predicted that Sri Lanka’s economic growth could hit 18-year low this year on the Easter Sunday bombings. The Finance Ministry estimates the hit on tourism industry to be around US $ 1.5 billion. Sri Lanka made US $ 4.4 billion in tourism earnings last year.