Govt. hints at returning to eurobond market

• SL has to rollover a US $ 1bn sovereign bond in July, next year 
• SL couldn’t go to eurobond market this year, due to COVID-19 crisis
• Country’s return to bond market could be sooner than expected, as US treasuries yields hover near zero levels
• Govt. leans heavily on domestic borrowings to finance over 2/3 of budget deficit 

The government hinted its intentions to returning to international capital markets to partly refinance its foreign borrowings next year, as it seeks to raise Rs.264 billion or approximately US $ 1.4 billion via commercial borrowings. 

Sri Lanka has a billion dollar sovereign bond to be settled in July 2021. The 2021 projected commercial borrowings are 34 percent or Rs.67 billion more than the estimated Rs.197 billion under the column ‘foreign commercial’ borrowings, in 2020. 

Sri Lanka could not return to the international capital market this year, due to the market tumult caused by the new coronavirus since the beginning of this year. 

But the bond markets are seen calming with countries beginning to deal with the virus while keeping their economies open. Also, the prospects of a successful vaccine against the virus by early next year have supported the market sentiment.

Sri Lanka’s return to the international bond market could be sooner than expected, as US treasuries yields – the benchmark global bond yield— hover near zero levels and thus, the yield-seeking investors could flock towards frontier market bonds. 

According to data, Sri Lanka has external liabilities of US $ 588.2 million, from October through January 2021 and further US $ 4.9 billion from February through January 2022, with a billion dollar sovereign bond settlement due in July 2021.

Sri Lanka is expecting US $ 700 million from China Development Bank and is in talks for a billion dollar swap facility with the Reserve Bank of India, its second such arrangement after a US $ 400 million earlier this year. 

The government said it was looking at alternative bond issuances in Samurai and Panda markets, to raise around US $ 500 million. 

Meanwhile, as earlier indicated, Sri Lanka plans to lean heavily on the domestic sources to finance its budget deficit in 2021, with over 70 percent or Rs.1,466 billion is slated to raise through non-bank borrowings (Rs.1,086 billion), Sri Lanka Development Bonds (SLDBs) (Rs.60 billion) and bank borrowings 
(Rs.319 billion).

The higher reliance on local borrowings also demonstrates the expectations for the domestic interest rates to stay lower, providing a better deal for the government than raising money through foreign sources.

Meanwhile, the gross foreign financing for 2021 is projected at Rs.606 billion, of which Rs.507 billion goes into foreign-denominated debt settlements. What is in between the gross foreign financing and what is projected as commercial sources are the ‘project and programme loans’, which are estimated at Rs.342 billion for 2021.