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
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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The authorities in Sri Lanka have opened a criminal investigation into the crew of a cargo ship laden with toxic chemicals that has been burning off the island nation’s coast for 12 days, spilling debris into the ocean and polluting the country’s beaches, the New York Times reported.
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.
Sovereign default risks are on course to rise further in 2021, with Iraq, Sri Lanka, Angola and Gabon at high probability of default, say Goldman Sachs analysts, Reuters reported. Five sovereign debt defaults or distressed debt exchanges - in which investors swap their debt for new bonds, often with longer maturities and a reduced value - have already happened in 2020 in the aftermath of the COVID-19 crisis, the most in around two decades.
A would-be hub of Indo-Pacific commerce and global tourist gem, Sri Lanka was already struggling to deliver on grand visions before the coronavirus crisis struck the world economy, Bloomberg News reported. The next few months may determine its ability to avert a painful debt restructuring. The South Asian nation is locked in talks with the International Monetary Fund for emergency-financing aid, after its second longer-term program with the fund in less than a decade expired last Tuesday.
Sri Lanka’s finances were fragile long before the coronavirus delivered its blow, but unless the country can secure aid from allies like China, economists say it may have to make a fresh appeal to the IMF or default on its debt, Reuters reported. All the tell-tale crisis signs are there: a tumbling currency, credit rating downgrades, bonds at half their face value, debt-to-GDP levels above 90% and almost 70% of government revenues being spent on interest payments alone.
Fitch Ratings has downgraded Sri Lanka's long-term foreign-currency issuer default rating, citing political upheaval that has resulted in the country having no functional government, the International New York Times reported on an Associated Press story. Fitch says it lowered the country's rating to B from B plus with a stable outlook, reflecting heightened external financing risks, uncertain policy outlook and a slowdown in fiscal consolidation.