Finance Ministry allays loan default fears

• Assures all lenders prompt settlement of next year dues
• Says loan payments can be charged on the Consolidated Fund
• Says working closely with CB for ISB payments, building a buffer 

The Finance and Economic Affairs Ministry has assured lenders that Sri Lanka will honour its dues during the financial year beginning from January 1, 2019, despite the current political impasse triggered by the sacking of Prime Minister Ranil Wickremesinghe by President Maithripala Sirisena on October 26.

The situation worsened by the subsequent dissolution of the Parliament by President Sirisena, which is now being challenged at the country’s highest court of law. 
The Parliament is in-charge of Sri Lanka’s finances and the current administration headed by Sirisena and former President Mahinda Rajapaksa as the Prime Minister—who replaced Wickremesinghe—is yet to present a budget for year 2019.

The Finance and Economic Affairs Ministry however in a statement on Wednesday said loans raised under specific laws can be settled with the funds at the Consolidated Fund. 

“The Government of Sri Lanka (GOSL) has raised loans in terms of the provisions of specific laws including the Registered Stock and Securities Ordinance, No. 7 of 1937, Local Treasury Bills Ordinance, No. 8 of 1923 and the Foreign Loans Act, No. 29 of 1957. 

As such, any dues on such loans that may arise, in accordance with the respective terms and conditions attributed to such borrowings, can validly be charged on the Consolidated Fund as provided for, in the Constitution of the Democratic Socialist Republic of Sri Lanka, and such specific laws as noted,” the Finance and Economic Affairs Ministry statement noted. 

“Therefore, the GOSL wishes to assure all lenders that all such dues will be met on the due dates as has been the time honoured tradition of the country where we have maintained an unblemished track record of debt payments,” it added.

The ministry further said they are working closely with the Central Bank to ensure that adequate buffers are created and maintained in view of the dues that will arise in 2019, specially the repayment of the International Sovereign Bonds (ISB).

Sri Lanka has to settle US$ 1 billion sovereign bond maturing on January 15, 2019 and another US$ 500 million sovereign bond maturing in April.

While asserting that Sri Lanka’s current level of gross official reserves amounting to US$ 7.2 billion is sufficient for the country to meet its external debt obligations in the period ahead, the Central Bank said as a precautionary measure, they have lined up various sources of funding to settle the country’s debt obligations.

Central Bank Governor Dr. Indrajit Coomaraswamy last week said three State-run banks—Bank of Ceylon (BOC), National Savings Bank (NSB) and People’s Bank (PB) would together raise US$ 750 million to US$ 1 billion from the Middle East before end of this year.

He said the monies raised would be invested in Sri Lanka Development Bonds.

Dr. Coomaraswamy also said the government has now decided to upscale the term loan arrangement with China Development Bank by US$ 500 million.
He further said the Central Bank is now in consultation with the central banks of Qatar and Oman for swap arrangements.

With all these inflows the Central Bank expects to mobilize US$ 2 billion by February 2019 and hopes to further build up the buffer through US$  600 million expected as disbursements from bilateral and multilateral agencies next year.

The Parliament last month passed a resolution to raise Rs.310 billion (approximately Rs.1.75 billion) by way of loans in or outside Sri Lanka for Active Liability Management by the Government of Sri Lanka.

Sri Lanka will have to keep on raising funds from various sources at least for the next few years, as the country has to settle US$ 4 billion on average for five years, starting from next year.

SL arranges funds to repay US$ 1bn eurobond

(Colombo) REUTERS: Sri Lanka has arranged funds to repay US$1 billion for a sovereign bond maturing in January, a finance ministry official said on Wednesday, seeking to assure investors that the island’s political crisis will not hurt its ability to service debt.

The official’s comments came a day after Moody’s downgraded Sri Lanka’s credit rating for the first time in eight years, blaming the crisis for aggravating already problematic finances.

A bitter row over President Maithripala Sirisena’s sacking of Prime Minister Ranil Wickremesinghe last month and the competing influences of China and India have shattered the island’s fragile ruling coalition. “There is no problem in servicing the debt. Under the constitutional provisions, the debt servicing comes under special laws and not under the parliament appropriation bill. We have already arranged US$ 1 billion for the debt repayment in January,” the official told Reuters.
The official didn’t want to be named as he was not authorised to speak to reporters.

Sri Lanka is scheduled to repay over a total of US$ 5.8 billion including US$1.54 billion in interest payments in the next 12 months, the Central Bank’s latest data showed. Foreign reserves were at US$7.2 billion.

The Central Bank in a statement said it had initiated negotiations with central banks of friendly nations to obtain foreign currency swap facilities of “sizable amounts”.

“These measures will further strengthen the country’s foreign reserve adequacy, and would enable timely servicing of external obligations while intervening cautiously in the foreign exchange market to prevent a disorderly adjustment of the exchange rate,” the Central Bank said.

Since the removal of Wickremesinghe, Sirisena has dissolved parliament and called for a fresh election, but the Supreme Court last week ordered a suspension of that decree until it had heard petitions challenging the move as unconstitutional.

The political instability has raised fears it will hurt the economy and impact the country’s ability to service its large external debt taken to finance reconstruction following the end the civil war in 2009.

Moody’s cut Sri Lanka to B2 from B1 and, though there is likely to be relief in Colombo that it put a ‘stable’ outlook on the new rating, the credit agency underscored ongoing risks.

The Finance Ministry said the downgrade would raise the costs of external borrowing, although the country did not have any plans to raise more funds overseas this year.