SL’s foreign debt burden set to ease after July bond settlement

Sri Lanka’s foreign currency debt repayment schedule for 2021 showed that the country will have a less daunting task of meeting its foreign currency obligations in the remainder of the year, after a billion dollar sovereign bond on July 27, should the economy is allowed to operate seamlessly, lifting even the remainder of the restrictions on certain sectors. 

After the July 27 bond repayment, external reserves appear to be adequate to cover the remaining foreign debt repayments, which could alleviate the near-term concerns of the country’s solvency. 

Sri Lanka has lined up funding to recoup the lost reserves via swap facilities with Bangladesh and India for US $ 250 million and US $ 400 million due in July and August, respectively while another US $ 780 million is expected in August under the Special Drawing Rights (SDR) allocation by the International Monetary Fund, which together bring about US $ 1.43 billion. 

While another billion dollar worth swap line is being negotiated with an Indian counterpart, the fast recovery in merchandise exports and the resilient remittance income could enable the Central Bank to collect another US $ 700 million as non-debt-creating foreign exchange into its reserves.

Sri Lanka is already sitting on a US $ 1.5 billion worth swap line with the People’s Bank of China, which the Central Bank hasn’t yet drawn from into the reserves, as it has been left as a buffer. 

Concerns were raised over Sri Lanka’s ability to meet its foreign currency debt obligations when the country’s foreign currency reserves fell to little over US $ 4.0 billion in May, sufficient to cover roughly three months of imports.

During the four months through April, Sri Lanka settled US $ 981 million in foreign currency debt obligations, out of which US $ 520.6 million went into settle capital, while the balance US $ 460.4 million went for interest. 

During the three months to September, Sri Lanka has US $ 2.0 billion in foreign liabilities for settlement, out of which a billion dollar goes into settle the July sovereign bond. 

Sri Lanka is operating with the absence of over US $ 4.5 billion income from the tourism trade, which could cover the entire foreign currency debt obligations due for the year.