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Government prepares to tackle a massive debt repayment of USD 1 billion in July

Sri Lanka’s debt servicing is on an unsustainable path, but the government is gearing up to tackle the massive repayment burden of USD 1 billion due in July this year although it has to spend LKR 5.8 billion daily to pay its loan installment and interest  this year.

This has to be covered with the daily revenue of LKR 5.46 billion, a veteran financial analyst said, adding that the total estimate for the payment of loan and installment this year for government borrowings is Rs. 2,157 billion.  

However, the expected revenue in 2021 is LKR 1,994 billion and the foreign debt burden has increased to ten times more than the current foreign reserves at present, he claimed.  

If the state monetary and fiscal authorities will be able to roll over short term debt and official loans, and China lends an additional USD 800 million to Sri Lanka in 2021, reserves should fall to around  USD 3 billion by the end of 2021, giving them room to muddle through next year.

This prediction was made by Citi Global Finance International in an in-depth debt analysis report on Sri Lanka recently.

The Central Bank has launched a special investigation after the revelation of a massive dollar transaction fraud by a leading financial institution after the sudden depreciation of the rupee to LKR 194 against the USD recently from LKR 185 -187 previously, informed sources said.

This fraud which led to the outflow of much needed foreign exchange has taken place without the knowledge of the heads of the private financial institution and neither the CBSL nor the Finance Ministry hasn't issued any statement regarding this matter, informed sources added.

Revealing the government’s strategy to tackle this massive debt burden of USD 5.5 billion, State Minister of Finance Ajith Nivard Cabraal said that in addition to savings from cheaper oil and import restrictions, the government was also continuing negotiations with India for a USD 1 billion SWAP, which is in addition to the USD 400 million it received in July.

Sri Lanka will also receive USD 700 million as the second tranche of a USD 1.2 billion syndicated loan from the China Development Bank. The first USD 500 million was transferred in March this year.

The government will also revisit a USD 500 million Samurai bond, which the CBSL began laying the groundwork for in 2018, and possibly a Panda bond as well, Cabraal said.

Sri Lanka could offer these bonds “sooner rather than later,” depending on market conditions, the State Minister added. A USD 1 billion repurchase arrangement with the US Federal Reserve, announced in July, also made the list.

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