By Uditha Jayasinghe
COLOMBO (Reuters) -Sri Lanka’s central bank said on Wednesday the country was committed to honouring all forthcoming debt obligations, adding that the island nation was not on the verge of a sovereign default.
Sri Lanka is facing its worst financial crisis in decades, and foreign exchange reserves have fallen to $2.36 billion, according to Central Bank of Sri Lanka (CBSL) data released earlier this week.
“The government and the CBSL are committed to honour all forthcoming debt obligations,” the central bank said in a press release.
“The attention of the CBSL has been drawn to certain recent media reports which have claimed that Sri Lanka is at the verge of a sovereign default,” it added. “The CBSL wishes to state that such claims are totally unsubstantiated.”
The shortage of foreign currency is already affecting parts of the economy.
At Sri Lanka’s main port in Colombo, around 2,000 containers packed with food, including rice, sugar and lentils, have not been released for several weeks because of a lack of foreign exchange to pay demurrage and other charges, an importers association said.
Merchants pay demurrage for the use of containers within ports beyond a free time period.
“We have given the list to the trade minister and recommended that the containers be released as soon as possible,” Nihal Seneviratne, Secretary of the Essential Food Commodities Importers Traders Association, told Reuters.
Seneviratne said an estimated $35 million was required to release the containers, even as food prices on the island steadily rise. Food inflation hit 25% in January, government data showed.
$1 BILLION IN JULY
Sri Lanka has outstanding sovereign bonds amounting to $12.55 billion, with $1 billion of the bonds maturing in July.
Sri Lanka’s trade ministry will hold a meeting with finance ministry representatives on Thursday to iron out payment modalities for the stuck containers, a government official said, declining to be named.
A finance ministry spokesperson did not immediately reply to a request for comment about the central bank’s comments or the meeting.
The CBSL has taken measures to secure alternative foreign exchange inflows through bilateral and multilateral funding arrangements with a plan to settle upcoming debt obligations, it said.
“With the realisation of expected forex inflows and the resulting build-up of international reserves, the need for initiating discussions with investors on debt restructuring… does not arise,” the central bank said.
Citi Research on Monday said that confidence in the Sri Lankan government’s external repayment position remains weak and foreign exchange reserves were declining faster than expected.
“We stick to our base-case scenario that international bonds will need to be restructured by July,” Citi Research said.
(Reporting by Uditha Jayasinghe and Devjyot Ghoshal; Editing by Raju Gopalakrishnan and Frank Jack Daniel)
