Sri Lanka in talks with foreign partners on debt financing

February, 25, 2021

Reuters - Sri Lanka is committed to meeting its debt servicing obligations and is in talks with some foreign governments and multilateral institutions on its finances, the central bank governor said on Wednesday.

Dwindling foreign reserves, a tumbling currency and rising debt levels have dogged Sri Lanka over the last year, leading to increasing fears of a default.

Governor W.D. Lakshman told a panel organised by a Sri Lankan think tank the country was in talks with several bilateral and multilateral institutions, including foreign governments and central banks, regarding financing.

“We are expecting some of these negotiations to materialise in a matter of weeks,” he said. “Sri Lanka remains committed to meet its obligations as it has done impeccably in the past.”

He described reports by several investment banks that the country could default on its debt as “politically and ideologically motivated”.

He said such reports were timed to coincide with the U.N. Nations Human Rights Council session in Geneva, where the Sri Lankan government is under pressure over alleged rights abuses.

Sri Lanka’s bonds and currency edged up following Lakshman’s remarks, with the Sri Lankan rupee stronger against the euro and the pound.

Bonds maturing beyond 2025 are still trading at around 40% below their face value, a level signifying heightened default fears.

Sri Lanka’s current account deficit fell to about $1 billion to $1.2 billion in 2020 from about $1.8 billion in 2019, Lakshman said, saying a current account surplus was “realistic” this year.

Lakshman said Sri Lanka aimed to reduce the level of foreign debt as a proportion of total debt in the longer term.

“This will no doubt require some austerity, in terms of mostly cutting down non-essential consumer imports (and) a systematic effort in enhancing all forms of foreign currency inflows,” he said.

(File photo)