Courtesy The Daily Mirror

Having overcome the first debt hurdle for the year— yet with another US$ 6.0 billion dollars worth of debt waiting to be retired in the next eleven months— Sri Lanka is still showing aversion to seek International Monetary Fund (IMF) support to restore investor confidence and regain capital market access.

Sri Lanka’s access to international capital markets was impaired after multiple rating agencies downgraded its sovereign credit rating. However, the authorities claim that they were not anyway going to rollover the sovereign bonds after the previous government piled up thrice as much as sovereign debt in less than two years prior to their dismissal in 2019. 

The Central Bank last week settled US$ 500 million worth sovereign bonds amid calls from certain parties to either default or to delay it to buy more time to rebuild the razor thin reserves to a more formidable level. 

There are growing calls for the government to start restructure the country’s debt, preferably with an IMF programme alongside, to negotiate a more sustainable repayment path with the lenders and bring the long overdue economic reforms.

However, Central Bank Governor Ajith Nivard Cabraal responding to those calls said they are in fact restructuring the debt with the readjustment of the portfolio and stressed that restructuring does not necessarily have to come from a foreign third party, as the Central Bank has adequate talent to better handle the situation. 

He also said the Monetary Board of the Central Bank does not take decisions on its own and it is advised by the Monetary Policy Consultative Committee, which consists of the best brains in the country. 

Similarly, he said policy decisions are not taken in silos and are shaped and reshaped by committees consisting of experts and around 870 qualified professionals working in the Central Bank. What we are doing is what lots of people who have to adjust their portfolios are doing,”he said in reference to the domestic mechanism in place to overcome the current foreign exchange crunch.

Sometimes you call it restructuring. When we told you we are having the payments of our bonds made with other inflows, what does that mean? That is restructuring. Earlier lots of people believed, restructuring means, you have to stop paying. And you default. Then you ask the creditors to take a hair cut,” he said. 

So, restructuring is sometimes being looked at as something painful. And when it is not painful, people think it is not restructuring. They think it has to be painful. It has to put the creditor into trouble. It has to ensure that a foreigner has to come and advise. It has to be done by some institution globally. Then and only it will be restructuring. But people do that all the time,” Cabraal further explained as to what restructuring entails in practice. 

However, irrespective of from where the policy prescription comes, Sri Lanka is already under immense economic pain with shortages of some of the essential commodities and soaring consumer prices.

Commenting about why the government is disinclined to go to the IMF, Cabraal said they are confident the home-grown programme would work, and retorted what programme the IMF could prescribe other than to restructure debt. 

Why is it that you are keen to inflict pain on your investors who have trusted you and come? Do you know what would have been the situation had we defaulted as what some people had proposed?” he asked in reference to those who propagated the default narrative in the run up to last week’s bond repayment. 

People can offer advice. They can say you must keep US$ 500 million. US$ 500 million out of US$ 21 billion of imports, what is the percentage? So, would you rather sacrifice your entire economy and hold back US$ 500 million?,” Cabraal asked ,while urging to look at the merits of the domestic programme, which is materialising, than being fixated on an unseen programme that could come from the IMF or elsewhere.