16 January 2019 12:01 am
Sri Lanka is considering an offer from Bank of China for a loan of US $300 million, which could be raised to US $1 billion, to help it meet repayments during coming months, global news agency Reuters said yesterday quoting two unnamed sources.
A series of credit rating downgrades and a political crisis have made it harder for Sri Lanka to borrow as it faces record high repayments of US $5.9 billion this year, US $2.6 billion of which fall due in the first three months.
The political crisis that was triggered on October 26 saw all three global rating agencies cutting Sri Lanka’s sovereign rating due to heightened refinancing risks amid political uncertainty.
“The risk premium has gone up after the recent political crisis and the borrowing cost is expensive after the rating cuts. This loan will be used to repay some loan repayment in the first quarter,” Reuters quoted an unnamed source as saying.
As of the end of 2018, nearly a quarter of Sri Lanka’s total foreign debt was owed to China, which has lent some US $8 billion while building ports, highways and planning other major investments in the South Asian island state.
Reuters said there was no immediate comment from Sri Lanka’s finance ministry, which is on holiday for a local festival, and calls to the Bank of China in Colombo were also unanswered.
However, quoting a second source Reuters said Sri Lanka’s Cabinet of Ministers had already asked Finance and Mass Media Minister Mangala Samaraweera to negotiate the loan, which has been offered at 6-month LIBOR plus 260 basis points. It has to be repaid within three years, the source said.
The 6-month LIBOR was at 2.865 yesterday.
Samaraweera is currently in Washington to meet with International Monetary Fund (IMF) officials in a bid to bring the derailed US $ 1.5 billion Extended Fund Facility (EFF) arrangement Sri Lanka has with the IMF back on track.
However news reports said an unexpected snowstorm had forced IMF Managing Director Christine Lagarde to postpone the meeting with Sri Lankan delegation consisting of Samaraweera, Non-Cabinet Economic Reforms and Public Distribution Minister Dr. Harsha de Silva, Central Bank Governor Dr.Indrajit Coomraswamy and Treasury Secretary Dr.R.H.S. Samaratunga.