Foreign financing of budget deficit records net repayment during January-August

Foreign financing of the budget deficit during the eight months to August recorded a net repayment, underscoring the government’s commitment towards reducing its reliance on foreign debt in the years ahead.

According to the latest data published by the Finance Ministry together with the Central Bank, the Treasury had made a net repayment of Rs.176.5 billion worth of foreign financing from January through August, compared to a net borrowing in foreign financing with a rupee equivalent of Rs.100 billion, in the comparable period in 2019. 

However, Moody’s Investors Service cut Sri Lanka’s sovereign rating by two notches on September 27 and Fitch Ratings followed suit with a rating downgrade on November 27, citing the country’s foreign debt refinancing risks and higher fiscal deficit. 

The Finance Ministry rubbished both rating actions and Central Bank Governor Professor W.D. Lakshman last week chastised them, citing their lack of readiness to understand the alternative policy stance and the attempts already made to cut down on the foreign part of the total debt. 

“Public debt will be managed in such a way the domestic to foreign component of the debt will become 55:45 in 2020 to 60:40 in 2021,” he said. 

“It can be shown through alternative indicators that even foreign debt is more manageable than doomsayers indicate,” Prof. Lakshman said.

According to the latest data, the total outstanding government debt in Sri Lanka has increased by Rs.1,305.2 billion during the eight months to August, from Rs.13,031.5 billion to Rs.14,336.7 billion. 

Of which, the total domestic debt component is Rs.7,759.1 billion, compared to Rs.6,629.1 billion in December 2019. 

The total foreign debt stock is Rs.6,577.7 billion, up by Rs.175.3 billion from a year ago.

By end-October, Sri Lanka had a foreign reserve buffer of US $ 5.9 billion, sufficient to cover 4.2 months of imports.