The Sri Lankan debt strapped government might have an authority to raise up to Rs 800 billion (out of the statutory Budget borrowing limits) additional borrowings in next year under the provisions of the proposed new Fiscal Liability Management Act, a senior Treasury official told Ceylon FT.
“We were planning to get parliamentary nod for the proposed Act as early as next January and we will present the Bill to Parliament during the second week of January”, he said.
The new Fiscal Liability Management Act will provide legal framework for a prudent debt management strategy.
Analysts said the debt strapped Government might raise at least US$ 2-3 billion during next year, by utilizing longer-term (more than 10 years) debt financing mechanisms such as international sovereign bonds and syndicated loans. In addition the Government will also soon call for ‘Expressions of Interest’ to divest the State stakes of Colombo Hilton and Hyatt hotels to fulfil the additional debt financing requirements which will equalled US$ 400-500m.
“Sri Lanka will tap into international markets under favourable market conditions, as early as next year to build the required additional buffer reserve stocks to face a series of foreign loan repayments in 2019 and we hope the Treasury will give the final nod to raise funds during the coming weeks”, a top Central Bank official told Ceylon FT.
Parliament on Saturday approved the third and final reading of the 2018 Budget, with a two-thirds majority.
The 2018 Budget will limit next year’s statutory borrowing requirements up to Rs 1.9 trillion but according to the proposed revised Fiscal Liability Management Act, it will have the authority to exceed that statutory borrowing limit. It will be an out-of-the-Budget additional borrowing of up to 10% or nearest for the past three years (2017, 2016 and 2015) of the average national total…debt stock value. Therefore, next year total government borrowings might be around Rs 2.7 trillion.
Currently Sri Lanka’s total national debt stock value is equal to Rs 10 Trillion or the nearest for the past three yeasr (2017, 2016 and 2015) average national total debt stock value will be around Rs 8 trillion.
Therefore, the Government will have an authority to raise a maximum of Rs 800 billion out of the Budget additional borrowings in each fiscal year, starting 2018 (for 2018 it will be 10% of Rs 8 Trillion = Rs 800b) under the provisions of the proposed new Fiscal Liability Management Act,
According to Fiscal Liability Management procedure, the Government also plans to kickstart early debt settling and debt rescheduling communication sessions with the existing state commercial lenders, such as the existing sovereign bond holders and syndicated loan subscribers.
The World Bank (WB) has recently urged Sri Lanka to start settling its bunched-up debt repayments prior to the maturity period which commences in 2019, as it will help retain international market confidence in the country.
“If you have a debt repayment scheduled for 2019, you don’t have to wait until 2019 to make the payment, because if you wait, international markets will know of your weak position. Sri Lanka needs to be in the forefront”, World Bank, Senior Country Economist for Sri Lanka and the Maldives, Ralph van Doorn stated in the recent country assessment report.
Critics said that Sri Lanka’s improved global rating agencies sovereign country rating outlook and recent favourable International Monetary Fund (IMF) and World Bank country diagnosis statements will help Sri Lanka to access low-rate international funds.
Sri Lanka plans to end this year with a more comfortable US$ 7.5 billion external reserve position.
Meanwhile, on Thursday the Executive Board of the IMF disbursed the third tranche (US$ 251.4 million) of its US$ 1.45 billion loan under Sri Lanka’s three-year extended arrangement facility. On Saturday, Sri Lanka also received the first tranche of the Hambantota Port partly divestment money.
The monies that are expected from the sale of national assets will be collected in a separate dollar accounts maintained at the Central Bank and the proceeds will only be utilized to repay the mounting foreign debt, Central Bank Governor, Dr. Indrajit Coomaraswamy told Ceylon FT.
Sri Lanka faces a record debt repayment of US$ 4 billion in 2019, and US$ 3 billion each year from 2020 to 2022.