Sri Lanka seeks to reschedule debt repayments via new bill

REUTERS: Sri Lanka plans to reschedule some loans to ease its heavy debt repayment burden over the next two years through a new bill, a top government official told 
Reuters yesterday.

The island nation’s repayment cycle of expensive loans starts next year and the US $ 81 billion economy will have to pay more than US $ 3 billion per annum, finance ministry officials have said.
The government faces a record debt repayment of US $ 4 billion in 2019.

The current laws do not allow the government to deviate from the annual borrowing level approved by the budget.

“The new liability management bill will help to reschedule some loans to smoothen the debt repayment,” Deputy Treasury Secretary S.R. Attygala 
told Reuters.

He said the new bill would introduce mechanisms with a raft of options, including buybacks and reissuance of existing debt to ensure sustainable debt management. The draft bill is now with the legal draftsman’s department.

In its eight-year economic policy plan unveiled this month, the government said higher debt repayments next year would reduce its ability to increase economic growth.

External debt rose to 79.3 percent of gross domestic product (GDP) last year from 71.3 percent in 2014. However, the government has planned to cut it to 70 percent by 2020.

The government has blamed “colossal borrowing” by the previous government for the spike in debt servicing.

The government under former President Mahinda Rajapaksa had borrowed expensive loans to rebuild infrastructure after a 26-year civil war, investing in ports, railways, highways and power plants, mostly financed by Chinese loans.

However, President Maithripala Sirisena, who unseated Rajapaksa in an election two years ago, is in the process of reducing the debt burden, including converting some Chinese debt into equity.