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Bandula declines offer to become Finance Minister

07 Apr 2022

  • Post remains vacant since Sabry’s adieu 
BY Shenal Fernando Despite the continuous deterioration of the Sri Lankan economy, the upcoming meeting at the end of the month with the International Monetary Fund (IMF) to secure an IMF programme and the impending maturity of the $ 1 billion international sovereign bond (ISB) issuance in July, the Finance Ministry post continues to remain vacant following the resignation of Minister of Parliament (MP) Basil Rajapaksa, with an offer made to former Minister of Trade Bandula Gunawardana being turned down by him.  Speaking to The Morning Business, government sources disclosed that the finance portfolio has been turned down by MP Bandula Gunawardana and a couple of other parliamentarians.  This development comes in the aftermath of the resignation of MP Ali Sabry from the finance portfolio within 24 hours of being so appointed. As of Monday (4), the $ 1 billion ISB issuance maturing in July was quoted at 59 cents on the dollar, its lowest price since May 2020. According to Bloomberg, this latest leg down, the biggest among developing countries, suggests that investors are getting more and more convinced Sri Lanka will have trouble honouring its debt when it comes due in less than four months. With the Sri Lankan rupee collapsing by over 50% during the last five weeks, continuing the foreign exchange shortage in the domestic market and Asia’s fastest inflation rate, the Sri Lankan economy is currently staring down the barrel of a gun. The Government’s insistence of meeting its foreign debt obligations as they become due instead of pursuing a debt restructuring process has led to widespread essential goods shortages in the country. Consequently, violent protests broke out islandwide resulting in the resignation of the entire Cabinet of Ministers on Sunday (3). While a temporary Cabinet was appointed on Monday, the continuous vacancy of the Foreign Minister’s post is concerning, considering the situation of the economy. Critics have called on the Government to clearly communicate Sri Lanka’s progress in restructuring its debt.  Commenting on outbreak of protests in Sri Lanka, Patrick Curran, an economist at Tellimer, a research firm specialising in emerging markets, stated to Bloomberg: “Default was inevitable before the political turmoil, but it reduces the likelihood that the Government will be able to secure an IMF programme and engage with bondholders in the near-term. The prospect of broader political and social unrest also increases downside risks and could lead to higher exit yields and lower recovery values.” Following the resignation of the Governor of the Central Bank of Sri Lanka (CBSL) on Monday, the announcement of the Monetary Policy Review No. 3 of 2022, which was scheduled to be held on Tuesday (5), was postponed. However, it appears a significant rate hike is imminent as reflected by the increase in treasury bill rates across all maturities at yesterday’s auction. Accordingly, the average yield of the 91-day treasury bill increased to 14.12% from 12.92%, the 182-day bill to 15.36% from 12.25%, and 364-day bill to 15.69% from 12.28%.  


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