Sri Lanka in talks with bondholders to avoid default, says finance minister

Sri Lanka is negotiating debt aid with worldwide bondholders and is weighing an method to the IMF, because the nation struggles with a overseas reserve disaster that has left it near default.

Basil Rajapaksa, finance minister, informed the Monetary Instances in an interview that the federal government was “negotiating with all people” and “attempting all our choices” to keep away from default and alleviate the financial disaster.

“We’ve [international sovereign bonds] which we’ve to repay again, so we’re negotiating with them. Then we’ve collectors and we’ve to service their debt, so whether or not we are able to have an adjustment or some sort of factor,” he stated.

Rajapaksa added that the federal government would “take into consideration a programme with the IMF . . . All these discussions are going as nicely.”

Many buyers assume Sri Lanka will grow to be the newest to default on its sovereign debt through the pandemic, after the likes of Belize, Zambia and Ecuador. The nation has nearly $7bn in debt funds due this yr however lower than $3bn of overseas reserves.

Some Sri Lankan officers have insisted that the nation can keep away from this destiny by boosting overseas foreign money reserves by way of tourism and exports whereas securing extra help from China and India, two of its largest benefactors. The central financial institution governor this week told CNBC that “we don’t want aid” from the IMF.

Rajapaksa insisted the federal government might handle however was getting ready for contingencies. “I do know it’s very tough as a result of we’ve to pay this yr $6.9bn and, extra to that, we’ve to search out cash for medication, uncooked materials, gasoline, all these items,” he stated.

The shortage of overseas foreign money reserves has precipitated energy cuts and shortages of imports, together with gasoline and milk powder, which have exacerbated double-digit inflation.

Greater than a 3rd of Sri Lanka’s money owed are owed to worldwide bondholders and the nation final week repaid a $500m bond. One other $1bn is due in July however Dimantha Mathew, head of analysis at First Capital brokerage in Colombo, stated the nation may need already run out of overseas foreign money by then.

Its long-dated greenback bonds are buying and selling at lower than half their face worth, suggesting overseas fund managers are speculating on how a lot they may get again in a restructuring relatively than anticipating to be repaid in full.

Requested if he was negotiating a restructuring with bondholders, Rajapaksa replied it was “one thing like that”. “Clearly you may perceive what we would like and you may perceive what the bondholders want to have,” he added.

Sri Lanka has additionally turned to India and China for assist. New Delhi has supplied almost $1bn in aid and is negotiating to supply additional help. Beijing final month supplied a renminbi foreign money swap price $1.5bn, though analysts stated it was unlikely this could possibly be used to pay the dollar-denominated debt.

President Gotabaya Rajapaksa, the finance minister’s brother, has additionally requested China to restructure its loans, which have swelled to greater than 10 per cent of Sri Lanka’s overseas debt burden. Many say Chinese language credit score has exacerbated the crisis by getting used for giant however pointless infrastructure initiatives with little return.

Sri Lanka has beforehand entered 16 aid programmes with the IMF and, even earlier than the pandemic, buyers had been turning into cautious of its rising debt pile and meagre tax revenues. These had been additional eroded when the Rajapaksa authorities slashed value added tax and different levies in 2019, resulting in a cascade of credit score scores downgrades to junk ranges.

Sri Lanka has been locked out of debt markets whereas the pandemic-induced collapse in tourism and remittances precipitated greenback inflows to drop dramatically.

“Possibly with this Indian financing they will kick the can down the highway a bit of longer,” stated Carlos de Sousa, a portfolio supervisor at Vontobel Asset Administration, which holds some Sri Lankan greenback bonds. “However even when they repay in July, that is simply delaying the inevitable.”