Foreign reserves close to US$ 6bn after bond payment: Cabraal

In a statement to allay fears about Sri Lanka’s capacity to service its debt obligations, State Minister of Money & Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal said the country’s foreign reserves remain close to US$ 6 billion after settling the US$ 1 billion sovereign bond payment in October.

“…official reserves remain close to US$ 6 billion, after settling foreign debt service repayments of around US$ 4 billion thus far during the year, including the repayment of the matured International sovereign bond of US$ 1 billion in October 2020,” he said.

Cabraal also said as a result of the growing business confidence due to decisive action by the government, the Central Bank has been able to stabilise the exchange rate with only a marginal depreciation of around 1.5 percent so far this year.

The State Minister further said that government is presently negotiating a US$ 700 million loan from the China Development Bank, which is expected to be with an interest rate and terms of repayment that are significantly more favourable than the US$ 1 billion sovereign bond that was recently repaid. 

Commenting on the country’s external sector, Cabraal said import restrictions and lower global oil prices along with better-than-expected merchandise exports, services exports other than tourism, and worker remittances, will help Sri Lanka to narrow its external current account deficit to below 1.5 percent of the GDP this year.

He also noted Sri Lanka’s entire local debt stock of Rs.7.7 trillion (US$ 42bn) as at end-July 2020, is being rolled-over and re-priced. 

“It may also be noted that a new trend has been established where greater reliance is being placed on domestic financing, and that strategy has already improved the domestic: foreign ratio of the debt from 51:49 at end 2019 to 56:44 now, which trend the authorities are keen to improve further in the period ahead. 

It is therefore clear that the government’s commitment and support towards better debt management, both directly and indirectly has already started to take effect,” he said. 

‘Sri Lanka is justifiably proud of its immaculate debt service record, without a single default. It would also be noted that Sri Lanka has experienced similar challenging circumstances previously, with high levels of debt. 

For instance, during 2001-2004, the country’s debt to GDP ratio was well over 100 percent, and by end 2005, it was at 91 percent. Nevertheless, Sri Lanka was able to gradually reduce the debt to GDP ratio to just 72 percent by end 2014 through decisive and innovative action,” he added.