By:Staff WriterColombo (LNW): Underscoring what the Central Bank Governor Dr. Nandalal Weerasinghe said on an early finish to the debt restructuring, the former Central Bank Governor and economist Dr. Indrajith Coomaraswamy said Sri Lanka could wrap-up its debt restructuring talks by end June, three months before the first International Monetary Fund (IMF) programme review comes up in September.
Speaking at a podcast conducted by NDB Securities last week, the former Governor expressed confidence that the parties would be able to come to a broader agreement on how both domestic and foreign debt is restructured.
“Hopefully by the end of June, both the domestic and external debt will be restructured and there will be an agreement across the board on how that is done,” Dr. Coomaraswamy said.
On domestic debt restructuring, the Central Bank reiterated that they wouldn’t agree on anything which would destabilize the local banking system.
In an investor presentation made a week ago the Central Bank said the Treasury bills held by it would be subjected to restructuring and the bonds would be restructured on a voluntary basis.
The Central Bank holds little over 60 percent of the total outstanding Treasury bill stock.
Sri Lanka government is now facing the audacious task of fulfilling several structural bench marks including domestic debt optimization (DDO) operation aimed at liquidity relief while preserving financial stability to avoid further eroding of Sri Lanka’s repayment capacity, finance ministry sources divulged.
The part of the domestic debt or US $11.4 billion Treasury bill restructuring process is set to begin this month with the aim of finalizing it in May this year Central Bank stated.
A voluntary domestic debt operation was expected for the holders of $24 billion of T-bonds. Sri Lanka’s total local currency debt is equivalent to $36.6 billion,
Dr. Coomaraswamy said such a process wouldn’t have any negative implications on either the Central Bank balance sheet or the broader economy.
“I don’t think there would be any systemic consequences of that development. I see no problem of taking this course of action”, he added.
However, he said that could entail the Treasury bills held by the Central Bank being converted into long term bonds.
He further said that for the bond restructuring to be effective there has to be a wider participation in the restructuring process by the domestic bond holders as it is voluntary. Therefore, the government may have to provide some incentives for the bond holders to take part.
Sri Lanka’s economy is now on a path to recovery, earlier than most pundits predicted and Bloomberg Economics last week forecasted the Sri Lankan economy to register a growth of about 2.0 percent for 2023 as tourism is on course for faster recovery and the country is growing from an extremely lower base last year.