Thu, 29 Feb 2024 Today's Paper

Prez reignites domestic debt restructuring fears

18 August 2022 08:48 am - 10     - {{hitsCtrl.values.hits}}

A A A

  • Says ISB holders may push govt. to restructure domestic debt as they alone may not be keen to take a haircut 
  • Points out it is pension funds and banks that have invested mostly in Lankan ISBs and not multi-billionaires 
  • Says Sri Lanka needs to have one approach towards debt restructuring, may it be ISB or bilateral debt
  • Remains optimistic of fresh foreign inflows once SL enters a staff-level agreement with IMF 

Reigniting fears over a potential local debt restructuring, President Ranil Wickremesinghe this week warned that Sri Lanka’s International Sovereign Bond (ISB) holders may push the government to restructure the domestic debt, as they alone may not be keen to accept a steep haircut under a debt sustainability plan, which is a prerequisite to secure an International Monetary Fund (IMF) bailout. 


“The more difficult issue is how do you deal with private creditors? The money that is invested is not all by multi-billionaires. Lots of money is from pension funds and from other earnings, from banks and a haircut means that those pensioners have to take a dock. We know the situation where we are in, where the EPF today is worth half of what it was three years ago. So, will they take that cut? That is what we have to decide,” Wickremesinghe told the Organisation of Professional Associations (OPA) annual conference and awards ceremony held in Colombo this week.


Following the pre-emptive debt default on foreign debt on April 12, Sri Lanka is required to secure the consent of its foreign creditors, including bilateral creditors and majority of ISB bondholders, to initiate restructuring of its debt to secure an IMF bailout package. 


Finance professionals and economists have warned that a full-scale restructuring of the rupee-denominated domestic debt could bring severe implications on the country’s banking sector, endangering the stability of the financial system.


Lazard, Sri Lanka’s financial advisor in debt restructuring, is currently preparing the debt sustainability plan for the country and the government has already initiated debt restructuring talking with India. However, Wickremesinghe noted that China remains as the first hurdle in 
this process. 


“Now there are two groups – the West, which thinks of a haircut and the Chinese would like to give additional loans to pay off these loans. So, there has to be one approach and we are talking with Japan about how this could be achieved and we’ll talk with China,” he noted. 


After agreeing on the debt sustainability plan, Wickremesinghe said the government would be forced to increases taxes, which would result in bankruptcies, in particular impacting the small and medium enterprises and further adding strain on the banking sector’s asset quality.

 However, he assured that the government would come up with measures to contain the impact without divulging further details. “That we have to face and the government is preparing measures for that. But let’s ensure that this is only for a short term and not even for the medium term. To do so, we must at the same time look at our stabilisation,” he said.


Following the enactment of the proposed 22nd Amendment to the Constitution, Wickremesinghe revealed that the government is considering the appointment of a Parliament oversight committee on banks and financial services. Although the economy is not out of the woods yet, Wickremesinghe said the country is moving towards gradual stabilisation. Once the country secures a staff-level agreement for the IMF bailout, he was optimistic that the country would see an increase in foreign exchange inflows. “... the staff-level agreement will come in and that will give us confidence. Money will come in from some other donors, some other multilateral organisations; some investors wouldn’t mind taking the risk,” he said.

 


Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

  Comments - 10

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka
  • Doug Thursday, 18 August 2022 09:17 AM

    Mr. President missed the issue completly, the reason for this debt burden is a set of people in this country was paid salaries to do nothing - these are called government servants in state owned institutions, until this is stopped nothing will chnage

    Decentgent Thursday, 18 August 2022 09:19 AM

    A bleak future for SL. We advise the Prez not to take ant actions which will hit the pensioners and the Senior citizens. They have all served this country diligently and sincerely in all sectors n hence at this time of their old age, illness etc., this section of the should not put into any difficulty.

    Allen Selwyn Thursday, 18 August 2022 09:20 AM

    In April they thought they had the money. Then it was August and now it is September. Details of IMF requirements are unknown. Since April not one politician or official has let it be known how debt is to be repaid. September may be the month that IMF will release funds and it may be the month of significant job losses and bankruptcies. The pain is yet to come.

    Bandu Thursday, 18 August 2022 09:58 AM

    Sad how financially illiterate SL journalist are. Inflation is at 60%, depositors are paid 15% PA. People are loosing 45% of their purchasing power on cash. Would a 20% bond hair be an issue among informed?

    Sach Thursday, 18 August 2022 10:07 AM

    The stupid Lankans were deceived by NGOs advocating debt restructuring and pre- emptive default. Rajapaksa was trying to avoid bankruptcy and debt restructuring with austerity measures. Now the whole banking sector would be collapsed. And ungrateful Lankans deserve this.

    Sokrates Thursday, 18 August 2022 10:24 AM

    All small and medium-sized companies cheat on their tax declarations. If there are tax increases, it shouldn't be a problem for these companies, because then there's more cheating.

    Bond Scam Thursday, 18 August 2022 12:21 PM

    Why is Ranil providing ideas to ISB holders. Let sleeping dogs lie.

    Waco Thursday, 18 August 2022 12:28 PM

    Loans can not be re-structured. Because part of the lend money in already in private Banks, looted by powerful politicians.

    Ram Thursday, 18 August 2022 02:59 PM

    Ranil has failed to do anything or even to facilitate the IMF help but can be seen in the photo grinning cheek to cheek as if everything is under control

    sss Thursday, 18 August 2022 04:38 PM

    Ranil's henchman owes half of the Rs. 54 billion bad loans of People Bank


Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment





Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka