SL mulls issuing sovereign bonds in 2017 and 2018

In a bid to stretch the international bond maturities that are due from 2019 continuously up to 2021, Sri Lanka now mulls to tap the international capital market once again in next year and perhaps in 2018 also. 

The Central Bank Governor, Dr. Indrajit Coomaraswamy stated that he sees headroom for raising moneys via International sovereign bond (ISB) issuance next year as there are no bond maturities coming up during this period. 
“In 2017 and 2018 there are no bullet payments in relations to an ISB. We think that creates the space for some liability management.   
So, we will go to the market and use those resources to address the bunching that is going to come up from 2019 onwards,” Dr. Coomaraswamy told the reporters yesterday.     

However, it was only recently Institute of Policy Studies’ (IPS) senior economist Dr.Dushni Weerakoon told a forum that Sri Lanka has no headroom for further external borrowings due to already weakened external debt matrices. 

Sri Lanka’s debt-to-GDP ratio – widely used debt ratio to gauge the risk of debt posed to a country’s economy –rose to 76 percent by the end of 2015.  The total external debt-to-GDP has also risen to 54 percent as private corporate and state affiliated entities were encouraged to borrow externally from 
2011 onwards. 

Further, more than 90 percent of the government’s revenue evaporates for annual debt servicing compelling the country to borrow even for its day-to-day expenses – a situation similar to a bankrupt establishment. 
“There is no further room for Sri Lanka to see a further weakening in external debt ratios,” Dr. Weerakoon said during the annual sessions of the Sri Lanka Economic Association, which were held this October.   
According to Dr. Weerakoon, there are as much as US $ 5.0 billion worth of ISBs that are coming up for repayment every year for three years from 2019, by which time the country will have to be ready either to retire or to roll-over them—the latter being the most-likely scenario.  
Therefore, she believes Sri Lanka is running out of its options for borrowing externally for balance of payment (BoP) and fiscal support as it had been doing in the past.     
“That option of providing external borrowings for balance payment (support) and fiscal support, I don’t think is a luxury that we can afford for the simple reason that from 2019 onwards all or most of our ISBs are bunching up for settlement,” 
she remarked. 
On the contrary Dr. Coomaraswamy sees an opportunity to borrow during the next two years for better liability management. 
“During the next couple of years, the ideal scenario would be to raise money through ISBs and push out the maturities of bonds which are becoming due starting from 2019 to 2025. We need to stretch out those maturities to address that bunching,” he said.
However it is likely that Sri Lanka will have to pay a higher risk premium as the country was downgraded by Fitch
 Ratings this year. 
This situation could become further challenged as the United States Federal Reserve is close to increase its interest rates and investors are already pulling out their capital from emerging markets. 
Further, Sri Lanka neither has choice nor flexibility to decide when to tap the international market even if the situations are unfavourable because the country’s options remain very limited in terms of external 
debt management.  
Sri Lanka raised US $ 3.6 billion during 2015 and 2016 in ISBs for BoP and fiscal support and also to settle government loans that came up for due.