Cabraal says debt restructuring underway without IMF assistance

By Sanath Nanayakkare

Sri Lanka will not seek IMF assistance to restructure its debt, Central Bank Governor Ajith Nivard Cabraal has said, adding that debt restructuring is an ongoing process which the country has already undertaken.

“There are many instances where people ask us whether Sri Lanka needs to restructure its debt repayments. And I tell them, we have to manage our debt without using the word restructuring in a frivolous manner, the Central Bank Governor said on Saturday.

The Central Bank Governor made these comments addressing a virtual meeting hosted by the Centre for Banking Studies to discuss the implications of the National Budget 2022 which was presented in parliament on 12 Nov.

“Every debt situation needs restructuring on an ongoing basis. For example, if you have one debt where the interest rate is 7-8% and if you can find another source from which you can borrow at a cheaper rate, then you would be technically restructuring your debt. This is something that people sometimes don’t realize. In the same manner, you could have a debt which is of a shorter duration and if you’re able to increase the period of the debt and also ensure that your repayments are staggered even more, that is a way of restructuring your debt. If you can change the mix of your debt, from foreign currency, to local currency or between foreign currencies, that again is a type of restructuring of your debt portfolio which is to your advantage. That process is underway” he said.

“Sri Lanka has also understood that its reliance on International Sovereign Bonds (ISB) has been quite sharp and in the last few years, there has been a fairly extensive reliance on ISBs. Now this has to be re-shifted in some way so that we would have a greater control, within a long period of time. That’s why the government, very rightly, with the Central Bank is now examining the option of having government to government loan situations, central bank to central bank swaps, the examining of the possibilities of securitising remittances as well as other inflows. These are all new options the government is considering, together with the raising of non-debt creating inflows, monetisation of certain assets, increasing the value of exports and remittances. These are all natural options the Central Bank and the government are examining to ensure the debt profile is a lot more sustainable. Several of these ideas have already been put into action. We have spoken about it in the Central Bank’s Road Map as well. In the next few months, you will see a large number of these being implemented to position Sri Lanka on a debt sustainable path,” he said.

“When the proposals of the National Budget 2022 and the contents of the Central Bank’s Road Map are diligently implemented, Sri Lanka’s macro-fundamentals would look much better than now, and the country would be well on course for a 6% plus growth with stability.

“We are looking at 5% growth this year, of course on a much lower base of last year’s negative growth of 3.6%. But given the circumstances, that’s a reasonable number for this year. If the Year 2022 turns out to be a good year and Sri Lanka Tourism inflows also recover to about one-fourth of what it used to be prior to 2019, I think Sri Lanka would record an economic growth of more than 6% in 2022,” he said.

“The Central Bank will ensure that financial system stability is maintained, while growth is achieved in order to support the government to attract investments. Already there are several areas of investments planned, particularly in the Port City. The Port City Commission Bill has already been passed which gives massive opportunities for those who are looking to do business there. A study by a leading accounting firm has said that the Port City project would add 13.8 billion U.S. dollars to the country’s economy. That is a substantial number. If we can get that going, along with the organic growth of our own economy, we will have extremely useful economic indicators that would show the true potential of our economy whereby the private sector should be able to very keenly deliver on the promise of its full capacity”.