Sri Lanka has US$ 300mn in foreign debt obligations due for Aug. and Sept.

Sri Lanka’s foreign debt obligations due for August and September stand at US$ 300 million before the country settles a billion dollars in debt it borrowed via a sovereign bond in October, data from ICRA Lanka showed.   

Sri Lanka settled US$ 544 million in foreign debt in July utilising its external reserves, but the country beefed up its reserves by US$ 407 million in the same month to US$ 7.1 billion through multiple means worked out by authorities. 

“There is a reason to believe that the repo facility with the Fed, the currency swap with Reserve Bank of India, and proceeds of SLDB auction helped to reinforce the reserve position,” ICRA Lanka said. 

The rating agency also believes the appreciation of the gold prices have also increased the overall value of reserves during the month. Sri Lanka had foreign reserves worth US$ 7.6 billion at the end of 2019 and the fall in the reserves was mainly due to scheduled foreign debt repayments and weak foreign inflows from merchandise exports and services caused by the pandemic. 

Current reserves provide about four and a half months of import cover and the imports remain subdued due to lower aggregate demand and some import restriction in place mainly 
on non-essentials.

At the beginning of the year, Sri Lanka had US$ 4.9 billion worth foreign currency debt due for 2020, and by the end of the first four month the country had settled US$ 1.6 billion. 
Despite the challenges, there is consensus that Sri Lanka could settle its remaining foreign debt due for 2020 as the authorities work towards bi-lateral, multi-lateral and other grants to make up for the lost opportunity to tap the international capital markets due to the pandemic. 

Meanwhile, the earnings from merchandise exports are picking up faster than expected while imports remain muted both due to temporary restrictions in place for non-essential commodities and lower oil prices, softening the pressure on the reserves. 

Sri Lanka in June reported its lowest trade deficit after 11 years and provisional data for July suggested that merchandise exports had surpassed the billion dollar mark, only the second time for this year, after January. 

There is also an expectation that with the global yields, which are at rock bottom, there is no better time for the country to re-finance its sovereign bonds.

The parliamentary polls early this month could also instill renewed confidence among investors who could return with both portfolio and direct investments considering the political and policy stability assured for the next five years.