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Debt default likely in next 12 months: Advocata Chair

15 Sep 2021

  • Advises Govt. to face reality
  • $ 6.9 billion debt to be repaid within a year
  • Swap with China unlikely to help debt servicing 
By Shenal Fernando  Advocata Institute Chairperson Murtaza Jafferjee claimed that Sri Lanka will default on its foreign debt repayments within 12 months, during a virtual press event yesterday (14), for the launch of Advocata’s latest publication A Framework for Economic Recovery.  Jafferjee, who is also the Chairman of JB Securities and a former director of the Colombo Stock Exchange (CSE), noted that the default crisis is already here and that it is not sensible to wait till the foreign reserves have fully depleted to admit to the fact. Therefore, he argued that a sensible approach is for Sri Lanka to reprofile its debt, which means the country must freeze debt repayments for a few years to give the country time to recover.  He believes that a default is imminent and will occur within the next 12 months at the latest if the Government waits till the foreign reserves are fully depleted.  According to Jafferjee, around $ 37 billion of Sri Lanka’s debt is dollar denominated.  “It can be assumed that around $ 4.5 billion of this dollar-denominated debt is held by residents, with local banks holding $ 2 billion in Sri Lankan Development Bonds and $ 1.9 billion in International Sovereign Bonds (ISBs), and the remainder being held by non-banking entities. Therefore, the rest of the debt is owed to non-residents.”   He further pointed out that the average term to maturity of Sri Lanka’s debt is five years, and that over the next four to five years Sri Lanka will be liable to repay around $ 4.5 billion on market instruments, in addition to term loans and other forms of debt.  The official gross foreign reserves of the country stand at $ 3.5 billion. The calculated pre-determined drains on reserves over the next 12 months stand at around $ 6.9 billion. And within the next two to three months itself $ 1.5 billion in foreign debt needs to be repaid reducing reserves to $ 2 billion.   Commenting on the hope that the imminent three-year bilateral currency swap facility amounting to ¥ 10 billion (approximately $ 1.5 billion) between the People’s Bank of China (PBoC) and the Central Bank of Sri Lanka (CBSL) will strengthen foreign reserves, Jafferjee noted that he doubts the Chinese swap can be used for debt service payments, given that it is in Chinese yuan and the conversion of that currency would be of a higher rate.  


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