Prior to the beginning of the election cycle at the end of this year, Sri Lanka may tap international capital markets to borrow up to US $ 4.5 billion, including US $ 2 billion for debt repayment for next year, the Central Bank said.
“Our plan is to go out to the markets and raise as much money as possible to look after not only the debt repayment requirements for this year but also cover some of the payments of next year.
It’s possible that the election season may well go on to about the middle of next year. Therefore, we are trying to be proactive and raise the money that’s necessary to meet our commitments,” Central Bank Governor Dr. Indrajit Coomaraswamy said.
Last week, the Cabinet gave the Finance Ministry the nod to go ahead to raise up to US $ 2.5 billion through dollar-denominated International Sovereign Bonds (ISBs), which come under the limits of the 2019 budget.
Accordingly, BOC International, Citigroup, Deutsche Bank, HSBC, J.P. Morgan, SMBC Nikko and Standard Chartered Bank, which acted as the Joint Lead Managers for the earlier successful US $ 2.4 billion ISB, have been appointed for the prospective issuance as well. Dr. Coomaraswamy revealed that Sri Lanka might further raise up to US $ 2 billion under the Active Liability Management Act (ALMA) targeting the debt repayments due next year.As per ALMA, the government has the provision to borrow up to 10 percent of the outstanding debt in the previous year for the debt management of the following year.
However, Central Bank Deputy Governor S.R. Attygalle noted that Rs.480 billion (US $ 2 billion) or 4 percent of the debt stock is sufficient for liability management, which falls next year.
According to the Central Bank, the government would also consider financing from domestic sources, without only limiting itself to foreign financing.
Dr. Coomaraswamy noted that the Cabinet approval for the US $ 2 billion borrowing is likely to be received within 10 days.
Once the Cabinet approval is granted, he said that the Central Bank would appoint lead managers.
The World Bank has also offered a policy guarantee to Sri Lanka as assistance to the country in the aftermath of the Easter Sunday attacks.
“There is a possibility that the World Bank will take on an exposure of US $ 250 million, which can be leveraged four times over.
That means that the government can go out and borrow up to about a billion dollars on the back of the World Bank’s AAA rating from international banks,” Dr. Coomaraswamy said.
He noted that the borrowing on the policy guarantee would bring significant savings to the country.
The Finance Ministry is expected to seek the Cabinet approval to secure the policy guarantee from the World Bank.
However, the Central Bank officials noted that the process is likely to take several months.
In the meantime, the Central Bank is also continuing with its efforts to raise US $ 500 million through Panda and Samurai bonds.
The country has fulfilled 65 percent of its external debt repayments for this year.
The country’s external debt repayment for next year will be back loaded unlike this year, which was front-loaded. The first ISB maturity in 2020 falls in October. (NF)