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Eran comments on SL defaulting on debt payments, says access to capital markets important

9 months ago

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On the 12th of April 2022, Sri Lanka suspended repayments on most the government's external foreign currency debt, including the International Sovereign Bonds (ISB) and bilateral debts. With the end of the 30 days grace period since the ISB coupon payments due on 18th April 2022, Fitch and Standard & Poor credit rating agencies have moved Sri Lanka to selective or restrictive default (SD/RD) rating, officially signaling for the first time in history Sri Lanka has defaulted on its external debt, and says that access to capital markets is important at this juncture, Former State Minister of Finance MP Eran Wickremaratne says. "As the State Minister of Finance under the previous administration, we had identified that Sri Lanka's economy public finances were in a highly precarious position when we took office. As a result, supported by technical and financial assistance by the International Monetary Fund (IMF) as part of the extended fund facility, we implemented a number of policy reforms to improve the situation by including a new inland revenue act, fuel pricing formula, Active Liability Management Act and Debt Management Strategy. The Primary balance of the budget was turned from deficit to a surplus of 0.6% of GDP in 2018, with tax ratio at 12% of GDP," the statement read. MP Wickremaratne further mentioned in his statement that it was understood that it was important to maintain access to international capital markets to refinance the increasing external debt repayments, to maintain forex reserves at healthy levels and gradually reduce the external debt burden as a share of GDP. "By November 2019, gross official reserves were at USD 7.5 billion despite rising debt repayments and the credit rating downgrade in early 2019 as a result of the attempted constitutional coup orchestrated by the parties currently in the government. The fall out of the political volatility continued limiting our ability to push through the rest of our reform program, including an independent Central Bank and Privatising Sri Lankan Airlines," the statement read. Additionally, MP Wickrematne further mentioned that the progress achieved through consolidations in public finance and reforms were reversed within a matter of days following the November 2019 Presidential Elections. "The new Rajapaksa government debuted their cataclysmic mismanagement of policy and governance with massive tax cuts, impending revenue generation adversely. Tax revenue dropped to a mere 7.7% of GDP by 2021. As a result the IMF program was left incomplete and with credit rating downgrades amidst the covid-19 pandemic Sri Lanka lost access to international capital markets. CBSL was forced to abandon and semblance of independence, financing the budget deficit in the absence of tax revenue, and running down forex reserves to maintain debt servicing, imports and the rupee's value. Despite repeated calls from all relevant parties for policy reversal and re-engagement with the IMF, the Rajapaksa government kept to its homegrown regime of mismanagement," the statement further mentioned. The statement went on to mention that the Samagi Jana Balawegaya (SJB) is committed to supporting the Parliamentary process to find solutions for the economic crisis and provide social protection to the most vulnerable sections in society. "The SJB will also remain steadfast in its commitment to represent the voice of the people. The cry of the protest is for a new political culture, one of transparency and accountability. The SJB was formed on this principal and will not rest until the demands of the people are met," the statement concluded.

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