To avoid the worst case scenario of a sovereign default next year, Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva called on the government to boost investor confidence by earnestly working on an agreement with the International Monetary Fund (IMF) and prepare for debt re-profiling.

The former minister made these observations when he raised alarm regarding concerns expressed by international investment bank Morgan Stanley on the options open to the Sri Lankan government if it is unable to meet local and foreign debt repayments of about USD 9 billion, needed over the next 12 months.

Sri Lanka has already met the bulk of its debt repayments for 2020 including a USD 1 billion sovereign bond repayment in October.

However, the country will have to repay about USD 4.5 billion in debt in 2021, and faces multiple challenges due to COVID-19 and a rating downgrade.

Analysts have said Sri Lanka will find it difficult to raise the money from international financial markets as interest rates have spiked significantly, and it does not have the reserves to meet debt repayments.

The Finance Ministry has also said it is not seeking a deal with the IMF, something which De Silva believes would have helped bolster market confidence.

Economist Dr. Harsha de Silva citing a recent report by Morgan Stanley that pointed to a possible “tail risk scenario” regarding Sri Lanka’s lack of debt repayment capability, noted that the Government had to step up and disclose why it was refraining from reaching out to the IMF.

He argued that this was the first time that a major investment bank had issued such a warning for Sri Lanka and it should be taken extremely seriously.

De Silva noted that Morgan Stanley had indicated Sri Lanka may have to halt repayment on debt for 18 months, and may be forced to restructure repayment of what is owed over the next five years.

“This has never happened before. One of the leading investment banks in the world, Morgan Stanley, has predicted this a few days ago. This comes after Moody’s downgrade,” he added.

 

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