Business

Government planned to issue green bonds before default

  • Court proceedings reveal $ 2 b bond issuance planned for July, Sept. 2022
  • Cabraal reveals this in limited objections in 2 FR applications
  • Bond issuance part of $ 10 b inflows planned for 2022

The Government of Sri Lanka (GoSL) was looking to issue green bonds in July 2022 in order to raise $ 2 billion prior to the foreign debt servicing moratorium issued by the Finance Ministry on 12 April 2022, Court proceedings reveal.

These revelations with regard to the issuing of green bonds were made by former Governor of the Central Bank of Sri Lanka (CBSL) Ajith Nivard Cabraal in his limited objections filed in the two Fundamental Rights (FR) applications (SC FR 195/2022 and SC FR 212/2022) that are currently being supported before the Supreme Court, seeking accountability from the Rajapaksas and other leading bureaucrats of the former regime for the current economic crisis.

Accordingly, supporting for leave, one of the petitioners revealed that as per Cabraal, Sri Lanka had been seeking to issue $ 1 billion worth of green bonds in July 2022 and another $ 1 billion in September 2022. This was part of over $ 10 billion in inflows targeted during 2022, not inclusive of the inflows targeted under the previous six-month plan, which largely failed to materialise.  

This revelation was confirmed by Treasury Deputy Secretary R.M.P. Rathnayake, who admitted to The Sunday Morning Business that such a plan to issue $ 2 billion in green bonds around July 2022 had been in the pipeline, but was postponed following the foreign debt servicing moratorium issued on 12 April.

Elaborating further, he stated: “Plans to issue green bonds are still active. However, I’m unable to comment on an exact timeline, as we are yet to make a decision on when we will issue them, considering the current foreign debt servicing suspension.”

Green bonds are fixed-income Government securities issued under the promise of using the capital raised to wholly or partly finance projects and activities promoting a broad range of environmental objectives.

Green bonds are a part of a large classification called Environmental, Social, and Governance (ESG) bonds, which have grown in popularity over the past decade. The value of ESG bonds issued has increased from $ 28.4 billion in 2014 to over $ 1 trillion in 2021 as per data published by Morgan Stanley Capital International (MSCI).

On 6 May 2022, the CBSL launched the Sri Lanka Green Finance Taxonomy, which is a classification system defining and categorising economic activities that are environmentally sustainable. 

The Sri Lanka Green Finance Taxonomy will be applicable to all domestic and foreign market participants offering financial products (such as bank lending, debt instruments, portfolio management, investment funds), and large corporations, as well as national and local Government bodies.