$780M from IMF

CEYLON TODAY | Published: 2:00 AM Aug 4 2021

Sri Lanka is in line to receive an IMF disbursement of US$ 780 million on 23 August. This is because the IMF, due to the COVID-19 Pandemic, on Monday approved a general allocation of US$ 650 billion to its member countries. The allocation is based on membership quota. Sri Lanka’s quota with the IMF is 0.12 per cent. On that basis the disbursement allocated to Sri Lanka on 23 August will be $ 780 million. 

However, the tenure of this allocation nor of the interest charged on this facility is not known as yet. “Those are under discussion and will probably be known at the time of disbursement,” official sources who cannot be quoted, as they are not authorised to speak to the press, told this newspaper yesterday. Generally, IMF disbursements come with a maximum interest charge of 0.25 per cent and repayable within a period of a minimum of eight to a maximum of 12 years. 

Sri Lanka’s foreign reserves as at end June was wallowing at a 12-year low of $ 4.06 billion according to latest Central Bank of Sri Lanka data, last seen at such low levels in 2009, i.e. at the height of the LTTE war and its immediate aftermath. Meanwhile, with the repayment of a one billion dollar maturing sovereign bond, that took place last Tuesday (27 July), Sri Lanka’s reserves cover will have had fallen below $ 4.06 billion by now. 

An IMF bailout, known as a ‘standby arrangement’ (SBA) in IMF nomenclature and valued at $ 2.6 billion carrying an interest component of under 0.25 per cent and repayable over 12 years aided Sri Lanka in July 2009. Nonetheless, the situation now is seemingly worse. This is because Sri Lanka has foreign debt servicing commitments of a minimum offour billion dollars repayable annually, beginning from next year and up to 2026, excluding the country’s balance debt servicing commitments for the remaining five months of this year, beginning from this month. Sri Lanka had no such extensive foreign debt servicing obligations in 2009 and its immediate aftermath. 

What has driven Sri Lanka’s foreign debt servicing commitments to its current high levels are its foreign commercial debt servicing commitments led by the issuances of international sovereign bonds (ISBs) which had its genesis in 2007 when Sri Lanka first floated its ISB and raised $ 500 million of a five year tenure at an interest rate of 8.25 per cent. Sri Lanka raised its second $ 500 million ISB two years later in October 2009, i.e. five-months after the end of the LTTE terrorist war on 18 May 2009. It was of a five-year and three-month tenure carrying an interest rate of 7.45 per cent at a time when global interest rates were between zero and 0.25 per cent due to the global financial crisis and remained at those low levels at least till end 2014. 

The third ISB issued in September 2010 was of a 10-year tenure and valued at one billion dollars and payable over 10 years. The interest charged was 6.25 per cent. The fourth ISB issuance was in July 2011, which was also of one billion dollars in value and of a 10-tenure, carrying an interest rate of 6.25 per cent. It was this maturing ISB which Sri Lanka repaid last Tuesday. The fifth ISB was issued in July 2012. It too, was of one billion dollars in value, of a 10-year tenure and carrying an interest rate of 5.875 per cent. The sixth was on January 2014, of one billion dollars in value at six per cent interest and of a five-year tenure. Seventh, a $ 500 million ISB of a five-year tenure at a 5.125 interest rate issued in April 2014, eighth, on May 2015, of $ 650 million in value, of a 10-year tenure at an interest rate of 6.125 per cent. 

The ninth in October 2015, of value $ 1.5 billion, of a 10-year tenure and at an interest rate of 6.85 per cent, tenth in July 2016, of $ one billion in value, of 10-year tenure and repayable over 10 years; eleventh on May 2017, of $ 1.5 billion in value at a 6.2 per cent interest and repayable over 10-years; twelfth, on 18 April 2018 of $ 1,250 million value, five-year tenure at an interest rate of 5.75 per cent; thirteenth, also on 18 April 2018, of $ 1,250 million in value, of 10-year tenure at an interest cost of 6.75 per cent. Fourteenth, $ one billion, of five-year tenure, issued on 14 March 2019 at 6.850 per cent interest, Fifteenth, also on 14 March 2019, of $ 1.4 billion in value, 10-year maturity and at a 7.850 per cent interest; sixteenth, on 28 June 2019, of $ 500 million in value, of five-year tenure and at 6.35 per cent interest and the seventeenth, also on 28 June 2019, of $ 1.5 billion in value, of 11 years and nine months maturity and at a 7.55 per cent interest. It may therefore, be seen that this $ 780 million IMF issue alone is insufficient for Sri Lanka to tide over its financial morass. Further engagement with the IMF, similar to that of July 2009 may be necessary.

CEYLON TODAY | Published: 2:00 AM Aug 4 2021

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