Sri Lanka needs to restructure $1bn debt and needs stability – says outgoing finance minister

People walk past the main entrance to the Central Bank of Sri Lanka in Colombo, Sri Lanka March 24, 2017. REUTERS/Dinuka Liyanawatte

COLOMBO, April 7 (Reuters) – Sri Lanka must consider restructuring a billion-dollar sovereign debt due in July, the outgoing finance minister told parliament on Thursday, calling for an end to calls for a change of government in the context of the country’s worst economic crisis. in decades.

The opposition and some ruling coalition partners this week rejected calls for a unity government made by President Gotabaya Rajapaksa after his cabinet dissolved, hoping to quell street protests that had been going on for decades. weeks against shortages of fuel, electricity, food and medicine.

With its rapidly shrinking foreign exchange reserves, massive debt repayments and falling rupee, analysts say the government is running out of options.

“We have to look at how to structure the payment of the billion dollar international sovereign bonds maturing in July. We have to go to the IMF, I see no other solution,” said Ali Sabry, who sent his resigned in Rajapaksa on Tuesday, a day after being transferred to finance from the ministry of justice.

It was not immediately clear whether the president had accepted his resignation, which was submitted days before scheduled talks with the International Monetary Fund for emergency loans.

“We need to have political stability to find solutions to the financial crisis,” Sabry said.

“We need to discuss with the World Bank and we need to have a bridging financing plan with the AfDB. If we don’t have stability, who will lead these talks? he said, referring to the Philippines-based Asian Development Bank.

Opposition lawmakers, however, continued to call on the president to step down.

Critics have accused the government of mismanagement, but the economy has also been hit by drought and a sharp drop in tourism due to the COVID-19 pandemic.

IMF assistance would also likely come with tough policy choices — policy reforms that could add to the short-term pain in the hopes of putting the economy back on firmer footing in a few years.

JP Morgan analysts this week estimated that Sri Lanka’s gross debt service will stand at $7 billion this year, with a current account deficit of around $3 billion. In February, the country had only $2.31 billion in reserves.

Reuters reported on Wednesday that asset managers Blackrock Inc (BLK.N) and Ashmore Group Plc (ASHM.L) were among the top holders of Sri Lanka’s international bonds among a group of creditors as markets are preparing for a possible debt restructuring – which would be a first for the island nation. Read more

MONETARY POLICY

As the search for a replacement for Sabry continues, a new central bank governor was due to take over on Thursday in place of Ajith Nivard Cabraal, who resigned on Monday.

P. Nandalal Weerasinghe, a former chief deputy governor of the Central Bank of Sri Lanka who worked with the IMF, will hold a monetary policy meeting on Friday. It was originally scheduled to take place on Monday.

An analyst said the central bank should raise key interest rates by 300 to 400 basis points (bps) – after a 100 bps hike in early March – to rein in inflation which hit 18.7% in March .

“We also expect the newly appointed governor to present potential measures to be included in the IMF reform plan, his views on potential debt restructuring and currency management,” said Lakshini Fernando of Asia Securities. , adding that she also expected Weerasinghe to address the need for “more stability and transparency” at the bank.

Protests over shortages of food, fuel and other essentials have continued unabated in the country of 22 million people. There is little money left to pay for imports.

The 40% depreciation of the Sri Lankan rupee against the US dollar in one month has compounded the problems.

The stock market (.CSE), down a third this year, fell about 4% on Thursday.

Reporting by Uditha Jayasinghe; Written by Krishna N. Das; Editing by Clarence Fernandez and Kim Coghill

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