Govt.’s innovative policy measures in debt mgt. already yielding results: Cabraal

• Says share of foreign debt down to 40% at end-2020 from 48% in 2019
• Says moderation of foreign reserves will be a short-lived phenomenon 
• Expects US$ 32bn in foreign exchange inflows this year

The share of foreign debt in the government’s overall debt stock declined to 40 percent at the end of 2020 from over 48 percent at end 2019, under its innovative policy measures to service current debt obligations while reducing reliance on external debt in the medium term, according to the State Minister for Money & Capital Market and State Enterprise Reforms, Ajith Nivard Cabraal.

“These innovative policy measures are not restricted to traditional debt-based solutions to service the current debt obligations. Measures to build resources through non-debt solutions, the preservation of foreign currency resources and the gradual phasing down of the relative share of foreign debt are already yielding desired results, with a high likelihood of harnessing further improvements during the remainder of the year and beyond,” he said.
In the medium term, the State Minister said the government aims to limit its external debt portion to one third of its overall outstanding debt.

Although, the country’s gross official reserves have moderated since end of last year, he insisted that this would be a short-lived moderation, considering the country’s major natural and regular foreign exchange inflows ranging from merchandise and services exports, workers’ remittances, programme and project related inflows to equity investment inflows. 

The government expects US$ 32 billion in foreign exchange inflows in 2021.

“This is even without major forms of borrowings, such as floating international sovereign bonds (ISBs). These projected inflows are expected to increase by about US$ 2-3 billion annually in the period ahead with the support of well targeted policies and strategies of the government,” he added.

Therefore, he stressed that settling of the maturing ISBs of US$ 1-1.5 billion per annum over the medium-term shouldn’t be viewed as a major concern, while insisting that recent reports questioning of Sri Lanka’s ability to service its debt obligations are one-sided.

Further, the State Minister reiterated that the government has no intentions of any form of default on any obligation jeopardizing its longstanding relations with stakeholders and the impeccable credit history of the country.

“The government reiterates its utmost commitment on meeting its external debt obligations, which will be facilitated not only through direct and indirect financing arrangements but also through highlighted policy measures and the current work plan to increase non-debt creating forex inflows,” he added.

Moving forward with its fresh approach, he noted that the government would engage freely with all of its investment and development partners while implementing the envisaged measures to build up foreign reserves through non-debt creating inflows.

However, he didn’t rule out re-entering international capital markets while noting that the government would keep a close eye on the developments in such markets.