Increase in ISB’s was to convert short term borrowings to longer term ISB’s – Dr. Coomaraswamy

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Former Central Bank Governor Ajith Nivard Cabraal, during his term, alleged that the International Soverign Bond (ISB) borrowings of Sri Lanka increased from USD 5 billion to 15 billion during the period 2014 to 2019.

Addressing a seminar on current economic crises, Former Central Governor Dr. Indrajith Coomaraswamy stated that USD 5 billion out of the USD 10 billion increase of ISB during 2014 to 2019, was to reduce short term borrowings and to convert it into 5 to 10 year term ISB’s. 

“During that period, short term swaps were reduced from USD 2.5 billion to USD 500 million, while volatile portfolio capital in government treasury securities was reduced from USD 3.5 billion to USD 2.9 million. The ISB’s were not cheap but still cheaper than short term borrowings.”

Dr. Coomaraswamy further added that another USD 2 billion was borrowed by issuing ISB in 2019, predicting uncertainties and instability which generally arise during election period.  

Sri Lanka first issued ISB in 2007. Since then Sri Lanka hasn’t used its borrowings in most optimal way by investing in trade-able sector to increase foreign exchange, but rather many investments were made in non-revenue generating projects which made it difficult for Sri Lanka to service its debt, opined Dr. Coomaraswamy.

“Sri Lanka was able to borrow at concessional rates when it was a lower income country, so debt sustainability was not an issue. Once it graduated to a middle income country, and Sri Lanka started borrowing from international capital markets, it is subjected to discipline imposed by international markets and credit rating agencies. If we don’t work according to sustainable economics of credit rating agencies framework, they may downgrade us. Our dependence on ISB’s was extremely high on 2019, and we had to bring it down in a gradual manner, however, we lost access to international capital market borrowings in a short period of time due to tax cuts, which led to the current economic crises.”

By Rajiesh Seetharam