Bloomberg
Colombo
Sri Lankan central bank Governor Arjuna Mahendran is seeking concessional overseas loans to refinance costlier debt and reduce reliance on global bond markets.
“We are looking at tens of billions of dollars from lenders including the US, Japan and the European Union,” Mahendran said. Concessional credit will “eventually refinance most of the commercial lending the country has contracted in the last five to seven years.”
Under former president Mahinda Rajapakse, Sri Lanka raised $5.5bn from sovereign bonds with coupons averaging 6.5% as it built roads, ports and power plants following the end of a civil war in 2009. Maithripala Sirisena ousted Rajapakse in January’s presidential polls by pledging a more balanced foreign policy, and is tapping countries including India to reduce reliance on China to fund development.
“Moving away from commercial borrowing makes every sense,” said Dushni Weerakoon, head of macroeconomic policy at the Institute of Policy Studies in Sri Lanka. Debt management will get a fillip if the nation succeeds in tapping bilateral trading partners for scarce concessional funding, she said.
The Indian Ocean island nation’s outstanding foreign debt increased by 5.2% to Rs3.1trn ($23bn) in 2014, of which 52.1% was on non-concessional terms, according to the central bank’s latest annual report.
“We are looking at hundreds of basis points of savings, which will be announced over the course of the coming year,” said Mahendran, who was appointed by President Sirisena. “Our debt-service profile on external debt will become much more benign within a year.”
