Nivard rules out IMF bailout request
Governor of CBSL
Ajith Nivard Cabraal
- Affirms Sri Lanka will not default but will honor all its external debt commitments while addressing vulnerabilities
- Expresses confidence in the government’s emphasis on “home-made, doable” solutions
- Said that the technical expertise of the IMF is not necessary but that there is sufficient expertise within the Central Bank to deal with debt repayment
- The initial components of in-house solutions to instill stability and growth will be made public via the CBSL roadmap on Friday
- Claims Sri Lanka was not pushed to the wall with no options
- Points to 8% growth in 1 hour to reaffirm that Sri Lanka is not in recession
- SL has $ 5 billion in foreign debt repayment next year and another $ 25 billion liability between 2023 and 2027
By Nisthar Cassim
New central bank governor Nivard Cabraal on Saturday ruled out Sri Lanka turning to the International Monetary Fund (IMF) to seek financial support to deal with the debt service challenge, saying the government is would rely on a “viable and local solution”.
His claim was despite growing calls from several economists and the opposition for the government, including former Prime Minister Ranil Wickremesinghe during the webinar, to call for an IMF bailout as well as a debt restructuring. given the high amount of over $ 5 billion in foreign debt repayment next year and an additional liability of $ 25 billion between 2023 and 2027.
“I rule out going to the IMF or a debt restructuring, but we will rely on local and feasible solutions,” Cabraal said during a webinar titled “Debt Sustainability – Current Challenges” hosted by the Daily FT in partnership with the International Chamber of Commerce, Sri Lanka and several other organizations.
Cabraal said the initial components of the “in-house” solutions will be made public when the short-term roadmap is unveiled on October 1. “Our roadmap will instill stability and growth,” he added.
“There is no need to restructure the debt or go for an IMF program. We will honor all of our debt commitments while addressing vulnerabilities, ”said Cabraal, who previously served as central bank governor for nearly nine years between July 2006 and January 2015.
Cabraal said local solutions include an early / initial settlement of $ 1 billion of International Sovereign Bonds (ISBs) maturing in July next year at a discount, an idea he told banks about. global investment if he wishes.
Other measures include a greater focus on government-to-government financing arrangements, increasing non-debt foreign inflows through the sale of underperforming government assets, timely conversion of foreign exchange earnings by exporters , the renewal of Sri Lanka’s development bonds ($ 1.35 billion maturing in 2022), the use of import restrictions and a rapid recovery in tourism as well as the continued strong export performance.
Excluding a debt restructuring with technical support from the IMF, Cabraal also said that the Central Bank has sufficient expertise and that currently each foreign debt is under consideration with the exploration of different strategies to do so. face.
“Yes, we currently have strains in our external account, but we are making tough and careful decisions. This is not a case where Sri Lanka has been pushed to the wall without any options, ”stressed Cabraal who also added 8% growth in the first half of this year, but from a weak base, reaffirms that Sri Lanka is not in a recession.
He also said the short-term goal is to reduce the stock of BSIs (currently estimated at $ 13 billion) to $ 11-11.5 billion by the end of next year and to be comfortable with the fact that BSIs represent around 10% of the external debt portfolio. Cabraal recalled that the previous Yahapalana regime during his tenure had increased borrowing through ISBs by $ 10 billion and that the new government had in fact been forced to deal with its repercussions.
Former World Bank Chief Economist and current Professor of Development Practice at Georgetown University in the United States. Professor Shanta Devarajan, speaking from the United States, was among several webinar experts who highlighted the need for Sri Lanka to adopt its own debt restructuring program for the IMF.
He said such an exercise “from a position of strength rather than a weakness” following a debt sustainability analysis will gain support from other multilateral donors such as the World Bank and the Asian Development Bank, outside of international capital markets.
The executive director of the Institute of Policy Studies, Dr Dushni Weerakoon, said the lack of a credible and high-profile plan from the government on how it plans to deal with the growing repayment of foreign debt raised concerns and uncertainty in the markets. In this context, she looks forward to the short-term October 1 roadmap, as indicated by Governor Cabraal.
University of Rotterdam The Netherlands Lecturer in Economics and Associate Professor at the ISS, Dr Howard Nicholas was of the opinion that interest payments on government debt have reached an alarming level of almost 90% of income , hence the situation remains serious. He stressed that the most pragmatic way to manage sustainability and debt repayment was a concerted effort to boost high value-added exports. This suggestion was also widely endorsed by other experts during the webinar.
The issue of the high budget deficit and its correlation with overall public debt, the need for a realistic exchange rate and public sector reforms were also highlighted during the webinar, which also attended, as experts, the former Governor of the Reserve Bank of India, Dr Duvvuri Subbarao. , RBI Former Deputy Governor Dr R. Subramaniam Gandhi, CBSL Former Senior Deputy Governor Dr Nandalal Weerasinghe, United Nations Economic and Social Commission for Asia and the Pacific Acting Section Head – Financing for Development Dr Alberto Isgut, University Singapore National Non-Resident Senior Fellow and former Research Director of the ADB Institute in Japan, Dr Ganeshan Wignaraja, and the CEO of Lanka Rating Agency, Adrian Perera.
The University of Colombo MBA Alumni Association, CA Sri Lanka and Ceylon Innovent were supporting the organizations of the webinar which was broadcast on several web and social media platforms.