Sri Lanka’s Government debt to GDP ratio increase to 86.8%
A would-be hub of Indo-Pacific Commerce and global tourist gem, Sri Lanka was already struggling to deliver on grand visions before the Coronavirus crisis struck the world economy. The next few months may determine its ability to avert a painful debt restructuring, Bloomberg report said.
The South Asian nation is locked in talks with the International Monetary Fund for emergency-financing aid, after its second longer-term program with the fund in less than a decade expired last Tuesday. It’s shaping up as a classic battle between a political program geared toward goosing growth, and concerns about raising enough money to rein an already-massive debt load.
Sri Lanka’s government debt to GDP ratio increased to 86.8 percent at end 2019 from 83.7 per cent at end 2018, the 2019 Annual Report of the Central Bank showed.
In absolute terms, the outstanding central government debt increased by 8.3 percent to Rs. 13.031 Trillion Rupees at end 2019.
“The treasury is currently in the process of recording approximately 300 billion rupees worth of debt, that was not recorded in 2019 (annual report),” Secretary to the treasury, S.R.Attygalla told News 1st.
He added that about 180 billion rupees worth of debt from the previous year have already been paid and another 50 billion remaining to be settled.
According to IMF data, Sri Lanka’s, external debt makes up more than half of gross domestic product and is due to repay $3.2 billion of payments this year between May and December.
Meanwhile, the Bloomberg news agency reported that Sri Lanka’s debt load is also a legacy of a borrowing binge after Sri Lanka emerged battered from a bitter 26-year civil war in 2009. Some of that came from China, with Chinese President Xi Jinping’s Belt and Road initiative offering the elevation of Sri Lanka as an entrepot port on the route to the Middle East and Europe.
Sri Lanka’s government has indicated it’s expecting about $800 million from China and a $400 million swap line from India to boost reserves. The central bank said in a statement May 19 that the government will honor all its debt obligations on time, as it did in difficult times in the past. As for the IMF, no specific timeline has been announced for reaching a deal.
Sri Lanka’s dollar bonds have become the worst-performing among the sovereign frontier markets in Asia that have been able to raise offshore debt. The notes have lost about 32% this year, with its spread over U.S. Treasuries climbing more than 2,400 basis points at one point in May, according to JPMorgan Chase & Co. indexes. Its yield premium was about 1,700 as of June 5, more than double that offered by its peers in the region which are rated in the single B-grade category: Papua New Guinea, Mongolia and Pakistan.