Sri Lanka Not on Verge of Sovereign Default, Says Central Bank

Central Bank of Sri Lanka

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.

“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 CBSL has taken necessary measures to secure alternative foreign exchange inflows through bilateral and multilateral funding arrangements with a plan to settle upcoming debt obligations, it said.

Sri Lanka has total outstanding sovereign bonds amounting to $12.55 billion, with a $1 billion of the bonds maturing in July 2022.

“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.