Sri Lanka readies to tackle ISB repayment issue without hassle
Wednesday, 16 Jun 2021

Sri Lanka readies to tackle ISB repayment issue without hassle

20 April 2021 07:43 am

Sri Lanka is to mange International Sovereign Bond maturity payments in July this year using its foreign reserves while suspending the purchases Of ISBs by local banks to save much needed foreign exchange.  

The Central Bank has imposed a suspension on purchase of Sri Lanka International Sovereign Bonds by commercial banks until 23 April.

Central Bank said the move on banks including NSB is with a view to easing pressure on the exchange rate and considering the substantial amount of possible or potential outflow of foreign exchange by banks and its impact on bank’s risk management Companies over a long period of time, but has to be adapted to changing times.

Former Central Bank Senior Deputy Governor and  and economic expert  W.A. Wijewardena tweeted last week that the Government has come up with a unique way to manage its upcoming liability of $ 1 billion International Sovereign Bond (ISB).

Wijewardena said that he was told by a London-based trader that they would hold the July ISB to maturity since Sri Lanka would pay foreigners out of reserves and arrange to issue a dollar denominated note to local banks holding these ISBs. 

“No default of these bonds this year,” Wijewardena added. His apparent comment comes amidst fears within some financial circles locally and international that Sri Lanka may default its upcoming ISB settlement despite Sri Lanka’s clean track record foreign debt servicing and reassurance of same by the Government and the Central Bank.

A couple of things that could help Colombo are a touted $1.5 billion currency swap line with China to offset the loss of the India one.

It could also gain breathing space if the IMF gets the green light later this month to increase its Special Drawing Rights (SDR) that govern how much of its money governments can tap.

An overall $500 billion SDR increase is being discussed for the IMF which could result in a $609 million allocation for Sri Lanka, International finacial agencies  estimated

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