Senior officials of the Ministry of Finance (MoF) and the Central Bank of Sri Lanka (CBSL) emphasised to Finance Today that there is no need to restructure the domestic debt at this point of time.
“As a financial advisor to Sri Lanka’s debt restructuring process, Lazard group is conducting further analysis in this regard. They are given direct guidance from the MoF and the CBSL and other local advisory parties. Based on those observations, they will work to introduce an optimal debt restructuring plan that suits all parties and acceptable to IMF”, they said.
The IMF has provided Lazard with several scenarios in the preparation of a comprehensive debt sustainability analysis (DSA) for Sri Lanka. It is after analysing those scenarios extensively that Lazard is required to recommend the optimum method to achieve debt sustainability along with the opinion of Legal Advisor, Clifford Chance.
The analytical work and recommendation were to be completed by 10 July. Some analysts feel that the delay may be due to the difficulty of achieving debt sustainability in Sri Lanka without restructuring domestic debt which simply is not part of the Lazard mandate.
A major criterion will be to reduce the Public Debt to GDP ratio, which is currently close to 140 per cent, to a level below 100 per cent on a medium to long-term basis within a time frame of 10 years (2023-2032).
Sri Lanka Development Bonds, (SLDB) Treasury bonds and Treasury Bills are Sri Lanka’s main local debt instruments.
It has been observed that there is no need to subject them to a restructuring process as these have been issued on a short to medium term basis.
The CBSL has already announced that these maturities can be settled in local rupees in due course.
Due to the existing inflation conditions and depreciated exchange rate conditions, local debt sources have already undergone some self-restructuring in a background where their original investment values have now deteriorated.
Therefore, there is no risk of additional restructuring of domestic debt, the MoF and the CBSL have observed.
By Ishara Gamage