ECONOMYNEXT – Holdings of Sri Lanka’s international sovereign bonds have tripled in the past five years to 2019, as the last administration embarked on an unusual borrowing frenzy, the Minister of State for Finance said and in Capital Markets, Nivard Cabraal.
Cabraal was governor of the central bank until 2015.
“At the end of 2014, there were 5 billion ISBs,” Cabraal said. “But when we came back in December 2019, there was $ 15 billion ISB pending.”
The last administration had borrowed 12 billion sovereign bonds and settled 2 billion US dollars, he said.
“Almost $ 7 billion was raised over a 15-month period from April 2018 to May 2019,” he said.
By July, US $ 2.0 billion had been repaid.
The composition of foreign debt to local debt, which was 40/60, had deteriorated to 50/50, he said.
Some of the loans were taken out under an active liability management law, he said.
Sri Lanka was hit by monetary instability from around September 2014, amid activist monetary policy that triggered capital flight from rupee securities markets and losses of foreign exchange reserves almost continuously.
There was only monetary stability (deflationary policy) in 2017 and around 8 months of 2019, when the central bank was able to collect reserves.
The ALM law was an attempt to repay foreign debt with more foreign debt, which analysts said was similar to the intentions and results of the “Young Plan” of the Weimar Republic in Germany, based on misguided Keynesian commercialism. .
Ceylon Petroleum Corporation was also forced to borrow dollars in the same “Young Plan” style with unhedged currency risks. (Colombo / Aug 22/2021)