Sri Lanka

Global investors are growing more skeptical that Sri Lanka will be able to repay its long-term debt as the island nation turns to bilateral aid to help it meet obligations, Bloomberg News reported. The South Asian country’s dollar bonds maturing toward the end of this decade are trading near record lows and default risk is holding near an all-time high, data compiled by Bloomberg show. The first test would be a $1 billion maturity in July, which policy makers say they will repay in time after drawing down a swap facility from China to help meet a $500 million payment this week.
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Sri Lanka’s federal Cabinet will meet Monday to decide whether or not to seek bailout funds from the International Monetary Fund as the nation struggles with limited options to address upcoming debt maturities, Bloomberg News reported. The group of ministers will be joined by central bank Governor Ajith Nivard Cabraal as well as Treasury Secretary Sajith Attygalle, according to Environment Minister Mahinda Amaraweera, whose Sri Lanka Freedom Party members have favored approaching the Washington-based lender.
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India is working out a package on an urgent basis to assist Sri Lanka, following finance minister Basil Rajapaksa's New Delhi visit that focussed on measures to tide over an economic crisis that the island nation is facing, the Economic Times of India reported. India is expected to extend a food & health security package to Sri Lanka on an urgent basis, along with an energy security package and currency swap, and also push Indian investments, officials told ET.
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The Sri Lankan government campaign toward organic farming lasted only seven months, but farmers and agriculture experts blame the policy for a sharp drop in crop yields and spiraling prices that are worsening the country’s growing economic woes and leading to fears of food shortages, the New York Times reported. Prices for some foodstuffs, like rice, have risen by nearly one-third compared with a year ago, according to Sri Lanka’s central bank. The prices of vegetables like tomatoes and carrots have risen to five times their year-ago levels.
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Sri Lanka has declared an economic emergency empowering the authorities to seize stocks of staple foods and set their prices, to contain soaring inflation after a steep devaluation of its currency due to a foreign exchange crisis, Reuters reported. The president of the island nation, Gotabaya Rajapaksa, on Monday declared an emergency under the public security ordinance to maintain the supply of food items such as sugar and rice at fair prices. The emergency came into effect from midnight.
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Sri Lanka’s central bank said it will dip into its foreign exchange reserves to partly repay $1 billion of bonds maturing later this month, seeking to allay investors’ concern about a possible default, Bloomberg News reported. There may be some inflows to the government coming in July, which could also be used toward the debt obligation, Governor Weligamage Don Lakshman said at a press conference in Colombo on Thursday. The nation’s reserves stood at about $4 billion, according to a central bank statement last month.
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Sri Lanka’s risk premium for a default jumped, reflecting concern that the pandemic is damaging the nation’s ability to fill its foreign-exchange coffers ahead of at least $2.5 billion in dollar debt due in the next 12 months, Bloomberg News reported. The nation’s five-year credit default swaps rose to 1,553 basis points on Monday, the highest since March 1. A separate gauge of one-year default probability was at 27.9%, the steepest in Asia, up from around 13% over six months ago, according to a Bloomberg model where a reading above 1.5% signifies high risk of failure to pay.
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Authorities in Sri Lanka were trying to head off a potential environmental disaster Thursday as a fire-damaged container ship that had been carrying chemicals was sinking off of the country’s main port, the Associated Press reported. The Singapore-flagged MV X-Press Pearl started sinking on Wednesday, a day after authorities extinguished a fire that raged on the vessel for 12 days. Efforts to tow the ship into deeper waters away from the port in Colombo failed after the ship’s stern became submerged and rested on the seabed.
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Markets are showing mounting concern about Sri Lanka’s ability to manage debt loads, amid financial deterioration that sparked a downgrade deeper into junk Friday, Bloomberg News reported. Prices of the country’s dollar bonds show that while traders expect securities next year to be repaid, they’re increasingly uneasy about dwindling cash reserves for debt bills down the line. Notes due in 2021 are indicated at about 88 cents on the dollar, according to prices compiled by Bloomberg. That’s a level that shows some misgivings yet not alarm.

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