The decision by Ratings Agency -Moody’s Investors Services on November 20, to downgrade the Government of Sri Lanka’s foreign currency issuer and senior unsecured ratings from B1 (Negative) to B2 (Stable) has drawn a response from the Central Bank (CB) which has described the action as “unwarranted”.
Several Economists and knowledgeable persons have commented , and some of their analyses are given below.
Central Bank Governor, Dr. Indrajith Coomaraswamy:
Said that Sri Lanka has a clean record of servicing its international debt obligations which would be continued in the future as well. The Governor said, Sri Lanka’s macroeconomic position has neither deteriorated nor has there been any policy slippage since Moody’s last rating decision in July 2018, “in spite of the recent developments in the country’s political sphere”.
“Sri Lanka’s current level of Gross Official Reserves (GOR) amounting to US dollars 7.2 billion is sufficient for the country to meet its external debt obligations in the period ahead” ha said adding that” In addition, as a precautionary measure, we have has initiated negotiations with central banks of friendly nations with regard to obtaining foreign currency SWAP facilities of sizable amounts. Quoting facts and figures extensively the Governor elaborated on the safeguards and measures taken by the Bank.
“Arrangements have already been made to ensure Sri Lanka’s track record of meeting debt obligations on time is sustained.
In order to meet the Government’s external liabilities of International Sovereign Bond ( ISB) maturities of US $ 1 billion in January 2019 and US $ 500 million in April 2019, the authorities have already built a buffer fund from proceeds of the divestment of Hambantota Port and the syndicated loan of China Development Bank (CDB).
The space provided under the Active Liability Management initiative not exceeding a limit of Rs. 310 billion also provides for building required buffers and spaces to meet future debt service payments.
In addition, the issuance of Sri Lanka Development Bonds (SLDBs) of around US $ 750 million to US $ 1 billion during the remainder of the year and in early 2019 is now at an advanced stage of completion”.
By February 2019 more than USD 2bn will be mobilised. This would more than cover all the ISB payments due in 2019. In addition, the buffer can be further built up through US $ 600mn expected as disbursements from bilateral and multilateral agencies during next year.
“Meanwhile, domestic financing conditions have shown considerable improvement through spaces created and debt management strategies introduced recently. This has reduced the roll-over requirement of Treasury bonds and SLDBs in 2019, 2020 and in the medium-term.
The Treasury bond maturities, which amounted to over Rs. 600 billion in 2018, are lower in 2019 and 2020, amounting to around Rs. 450 billion and Rs. 290 billion, respectively. Similarly, SLDB maturities, which amounted to around US $ 2.3 billion in 2018, have also been reduced to around US $ 0.62 billion and US $ 0.82 billion in 2019 and 2020, respectively. Further, the new acquisition of government securities by the banking sector has increased by only 1.5 percent in 2018 as against the trend increase of around 5 percent in recent years”.
The recent rating by Moody’s is unwarranted. “Such an action only on the premise of heightened political uncertainly, with no evidence of slippages in macroeconomic policies, cannot be justified,” the Governor said.
Finance and Economic Affairs Ministry Secretary S.R. Attygala:
 Prof. Lalith Samarakoon
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He said so far no difficulty or problem has been experienced in the provision of state funds to pay public servants’ salaries, or public welfare and development activities.
The expenditure estimates for 2018 had been passed by Parliament. The Vote on Account will be presented in Parliament to sanction government expenditure for the first four months of 2019 instead of a budget.
The resolution for the Vote on Account presented by Prime Minister Mahinda Rajapaksa in his capacity as Minister of Finance and Economic Affairs had been approved at the cabinet meeting presided over by President Maithripala Sirisena on Wednesday 21.
‘Funds have accordingly been allocated for both recurrent expenditure and capital expenditure which include among other things provision of uniforms, education, free medicine, samurdhi and fertiliser subsidies, public welfare payments such as allowances for kidney patients and those with special skills, road development, housing, irrigation and potable water supply schemes.
Proposals for economic resurgence through rapid development of agriculture, industries and service sectors will be implemented in 2019’.
Dr. Malaka Ranatilleke, Dept of Economics, Peradeniya University:
The policy decision taken by the Central Bank of Sri Lanka to provide additional funds amounting to Rs. 90 billion to the banks is a positive step towards attracting new investments and helping entrepreneurs which will eventually ensure rapid social progress. The infusion of funds to banks will give a boost to micro finance, as well as small scale and medium scale enterprisers, self- employment, housing projects and agricultural activities. If space is provided to the entrepreneurial community to have access to funds on easy terms it will help provide speedy social progress. The economic progress resulting from new investments needs to be maintained in the larger interests of the country.
Prof. Lalith Samarakoon ,General Secretary/National Economic Council:
He said, “We have adequate capacity to settle our debt obligations amounting to US $ 1500 million (1.5 billion) due on 2019. Foreign debt of $1,000 million in next January and the remaining $500 million in April have also to be settled. We have already received US$ 650 million from theHambantota Port transaction lying in Government coffers.
Action is being taken to raise up to US $ one billion by way of investing in Sri Lanka development bonds through the People’s Bank, Bank of Ceylon and National Savings Bank. In addition, we will raise US$ 500 million by way of bonds issued to China Development Bank. He further said, “We would assure local and international investors that they need not harbour any fears about Sri Lanka’s capacity to service sovereign bonds, and added that Sri Lanka is committed to fulfill its obligations in maintaining financial discipline.
In 2014, Sri Lanka’s total debt stood at Rs. 7391 billion which has since increased to Rs. 10,991 billion and accordingly the total debt has increased by 49 percent since 2014 to date. The budget deficit 5.7 percent in 2014 has shot up to 7.6 percent in 2015, 5.4 percent in 2016 and 5.5 percent in 2017 due to many changes. The balance of payment deficit has also increased from 2.8 percent in 2014 to 2.9 percent to date,” Prof. Samarakoon said.