Home » Sri Lanka’s economy entangles with high local and foreign debt

Sri Lanka’s economy entangles with high local and foreign debt

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Sri Lanka’s economic situation has become highly uncertain with mounting local and foreign borrowings in the 18 months adding to the accumulated external debt of US$ 51 billion, Finance Ministry sources divulged.

The Ministry is taking urgent fiscal policy measures to tackle domestic debt and debt service while focusing on preliminary arrangements of external debt restructuring, reducing the fiscal deficit and external stability.

Sri Lanka’s domestic borrowings stood at Rs. 2.62 trillion during the past 18 months according to econometric models and provisional estimates of the Finance Ministry.

The domestic debt service payment this year is around Rs.80.72 billion and it is expected to increase to a high level if the government fails to control its domestic borrowings.

The total state borrowings were Rs 1.94 trillion by the end of 2021 and the loans taken from banks and licenced non banking financial institutions were Rs 3075.08 billion for the same year.

The government has borrowed a sum of Rs. 1785.10 billion for lic consumption expenditure from the banking system while the borrowings for education Arts, Entertainment and Agriculture sectors were Rs. 54.60 billion ,Rs. 11.80 billion and Rs. 81.35billion.

In addition  the total borrowings from  non bank financial institutions stood at 1142.50 billion in 2021.

The country’s external borrowings of $6.39 billion in the past 18 months has spiralled out of control as the country ran out of foreign reserves now amounting to less than $2 billion and usable reserves even less, Ministry data shows.

The Central Bank’s debt includes swaps with India, Bangladesh, Asian Clearing Union (ACU) deferred liabilities and the International Monetary Fund debt taken from the last programme.

India has committed more than $3 billion to debt-ridden Sri Lanka in loans, credit lines and credit swaps since January this year.

The majority of the foreign borrowings were made on loan agreements signed with China, which is almost 33.5 per cent, followed by ADB (25.5 per cent) and World Bank (18 per cent), respectively last year, Finance Ministry sources revealed.

The Government has obtained $809.1 million from China Development Bank (CDB) in 2021.

Meanwhile the World Bank has ruled out bridge financing or new loan commitments to crisis-hit Sri Lanka until the island nation’s economy sets up an adequate macroeconomic policy framework this year, the global lender has said.

In the wake of ever increasing domestic borrowings, ministries, departments and state institutions have been directed to control spending for development projects by cutting down overheads throughout 2022, Ministry guidelines revealed.

Treasury Bonds, Treasury Bills, Sri Lanka Development Bonds (SLDBs) and Provisional Advance were the main sources of domestic borrowings of the Government, the sources disclosed.

Accordingly, around 55 per cent of the total domestic borrowings were raised by way of Treasury Bonds while 29 per cent were raised by way of Treasury Bills and another 16 per cent was raised by way of SLDBs and Provisional Advance of Central Bank of Sri Lanka in 2021.

Further, proceeds from the Syndicate Loan issued in the first quarter of 2021 was utilised to finance the foreign currency debt service payments.

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