Sri Lanka's total outstanding government debt stood at Rs.6161 billion at the end of July 2012 against Rs.4975.2 billion reported during the same period of the previous year, the latest data from the Central Bank showed.
The data further showed that a month ago (end of June), the total outstanding debt stood at Rs.5951.6 billion. The key reason that can be attributed to the hike in debt in July was the US $ 1 billion sovereign bond, of which US $ 500 million will be utilized to repay a maturing bond.
The total domestic debt by the end of July 2012 stood at Rs.3185.7 billion. The government had borrowed Rs.651.5 billion on Treasury bills and Rs.2, 114 billion on Treasury bonds. Rupee loans amounted to Rs.58.4 billion.
Government’s total foreign debt reported at the end of July 2012 stood at Rs.2975.3 billion, touching almost the three trillion rupee mark, against Rs.2, 220.2 billion reported in the first seven months of 2011.
As of July 2012, the share of foreign debt rose to 48.2 percent of total debt and domestic debt fell to 51.7 percent.
Sri Lanka has been borrowing from international commercial markets through sovereign bonds and also is at the receiving end of large volumes of money from China's Exim Bank and Development Bank of China.
According to independent economists in the country, the pile of foreign debt is expected to increase with the proposed foreign borrowings in the future.
They further note that the danger of more borrowings will be a severe strain on the balance of payment situation of the country's economy. In 2011, Sri Lanka faced a severe balance of payment crisis and had to seek the help of International Monetary Fund (IMF) to get out of it.
Given the high amount of foreign debt, the foreign debt servicing costs (capital+interest) is also expected to surge substantially.
According to some economists, high debt servicing costs amidst slowing down export earnings can lead the country into a foreign debt trap situation, as the country may need to opt for further foreign borrowing to service earlier debt.
Sri Lanka’s exports in the first seven months of 2012 dropped 5.7 percent Year-on-Year (YoY) to US $ 6,592 million while the balance of trade widened 6.3 percent YoY US $ 6266.8 million.
Although expenditure on imports is also slowing down in tandem with exports due to the tight monetary policy the Central Bank has adopted, the imports are decelerating at a significantly slower rate.
Further, with increased foreign inflows to the stock market, worker remittances and tourism earnings being positive, economists point out that the cushioning effect of these inflows will be considerably hindered by the high foreign debt obligations the country is inherited with. (Indika Sakalasooiriya)